Nigeria’s Debt Trap Is a Revenue Crisis

By Olakunle Elatuyi, MPA

Nigeria’s debt problem is not debt itself; it is the weakness of the revenue base behind it. Public debt is often described as manageable because Nigeria’s debt-to-GDP ratio remains moderate by international standards and lower than that of many advanced economies. But that comfort is misleading. Debt becomes dangerous when revenue is too weak to service it, borrowing is too costly to sustain, and loans fail to generate stronger growth. On all three counts, Nigeria remains exposed.

The Real Risk
Government revenue remains exceptionally low by international standards, with recent IMF data placing general government revenue at about 9 to 11 per cent of GDP. Over the past decade, public debt has climbed sharply, reaching about ₦159 trillion by the end of 2025, while revenue growth has lagged badly. The pressure was exposed when debt service rose to levels that absorbed, and at times exceeded, federally retained revenue.

President Bola Tinubu captured the scale of the problem at the Africa Forward Summit in Nairobi, Kenya, on Tuesday, May 12, 2026, when he warned that Nigeria could spend about $11.6 billion on debt service in 2026, close to half of projected revenue. That is money that will not go to roads, schools, hospitals, or industry.

Why the Squeeze Gets Worse
The squeeze does not end there. Nigeria’s past reliance on Central Bank financing through “Ways and Means” advances helped fuel inflation, weaken the naira, and shrink the real value of public income. Heavy domestic borrowing has also crowded out private businesses. If banks can lend to government at double-digit rates, many small and medium-sized firms will be priced out of credit. Monetary tightening has only deepened the strain, trapping the economy in a cycle of weak revenue, high deficits, inflation, and punishing interest rates.

Reform, but Not Relief
To be fair, Nigeria has made some progress. The Debt Management Office has lengthened the maturity profile of the debt portfolio, helping to reduce immediate refinancing pressure. Subsidy removal and exchange-rate liberalisation are also intended to correct long-standing distortions. But reform has brought its own costs. A weaker naira has raised the local-currency value of external debt and added to inflation in the short term.

There are visible gains. Non-oil revenue has improved modestly, and borrowing has funded projects such as the Abuja-Kaduna, Lagos-Ibadan, and Warri-Itakpe rail lines, as well as the Second Niger Bridge. But visible is different from transformative. Nigeria has recorded occasional electricity generation peaks above 5,000 MW, but power supply remains far below what a country of more than 200 million people requires, while manufacturing remains a small share of GDP.

Nigeria’s problem is not just how much it borrows. It is how little productivity that borrowing has delivered.

The State Revenue Divide
The strain is not evenly spread. Lagos generated ₦1.26 trillion in internally generated revenue (IGR) in 2024 and reported ₦1.87 trillion in 2025, while states such as Yobe, Taraba, Ebonyi, Kebbi, and Adamawa generated less than ₦30 billion each in 2024. Lagos cannot be replicated everywhere; the lesson is that debt is sustainable only where own-source revenue, governance, and spending discipline are strong.

Borrowing for Survival, Not Growth
This is where the debt problem becomes most dangerous. When revenue cannot cover debt service, salaries, and basic operations, borrowing shifts from growth to survival. Nigeria’s ₦13.08 trillion 2025 budget deficit, past reliance on Ways and Means advances, and many states’ dependence on Federation Account Allocation Committee (FAAC) transfers all point to the same problem: debt is too often used to close fiscal gaps instead of building roads, power infrastructure, industry, and other assets that expand the economy.

That is why borrowing must be tied to revenue, repayment capacity, and clear economic value.

What Must Change
Escaping this trap requires five hard choices:

• Cut waste first by reducing duplication, overheads, and low-value spending. This would make revenue reform more credible and draw lessons from spending-control models such as Sweden’s expenditure ceiling and Germany’s debt brake.
• Raise revenue next by improving tax compliance, expanding digital collection systems, and demonstrating clearer public value to citizens, while saving more in good years, as Chile’s structural balance approach demonstrates.
• Stop routine reliance on Central Bank financing by enforcing clear legal limits so that budget deficits are not repeatedly funded through money creation.
• Borrow only after these safeguards are in place, and only for projects capable of raising productivity, creating jobs, or generating future revenue, with stronger appraisal and monitoring mechanisms similar to those found in fiscal responsibility frameworks in Brazil and India.
• Set a revenue-based debt-service limit. When debt service consumes too much of government revenue, new borrowing should require stricter National Assembly approval, a repayment plan, and proof of economic value.

Debt Limits Must Follow Revenue
Nigeria already has the legal foundation. The Fiscal Responsibility Act, 2007 limits borrowing to capital expenditure and human development, on concessional terms and with the required approvals, while mandating sustainable public debt. These principles align with the Constitution’s goals of welfare, productivity, and balanced development.

A revenue-based debt ceiling would give these principles real force by tying borrowing directly to revenue and debt-service capacity. Debt is serviced with cash, not GDP. Unless Nigeria raises revenue, cuts waste, and stops borrowing for recurrent expenditure and fiscal survival, its debt will remain manageable only on paper.

Olakunle Elatuyi, MPA, is a Public Administrator and Advocate for Integrated National and Subnational Policy