The debt time bomb

Imagine a person who works as a marketer in a bank, despite earning ₦500,000 per month, insists on buying a 2020 Mercedes C-Class, dining at places such as Terra Kulture every night, and living in a three-bedroom flat in Oniru. The credit card the bank gave him to maintain appearances is maxed out, his overdraft is constantly stretched, and he is taking out new loans just to pay the interest on the old ones. This individual, oblivious or indifferent to his impending ruin, then proposes to take on another colossal loan, equivalent to half of all his existing debt, claiming it’s for “investment” in an undefined business venture.

This is precisely the fiscal precipice upon which Nigeria now stands, as President Bola Tinubu’s administration pushes for a staggering ₦45 trillion ($24 billion) in new foreign loans, representing an alarming 60% of the proposed 2025 budget. This is not strategic economic planning; it is a profound dereliction of fiscal responsibility, threatening to plunge the country into an economic abyss.

The cold, hard figures paint a stark picture of Nigeria’s dire financial health. Public debt has ballooned to an eye-watering ₦144.7 trillion, a staggering 65.6% increase since President Bola Tinubu assumed office. While the debt-to-GDP ratio hovers around 50%, a more critical indicator, the debt servicing-to-revenue ratio, stands at a crippling 64%. These are not abstract statistics; they represent a fundamental constraint on Nigeria’s ability to fund essential public services, such as healthcare, education, and critical infrastructure. The proposed borrowing, if approved, would exacerbate this precarious situation by increasing Nigeria’s external debt by nearly 50% over the next two years.

Nigeria’s historical track record with borrowed funds offers little comfort. The Muhammadu Buhari government accumulated approximately $30 billion in external debt with little to show for it. Half-completed roads and abandoned projects litter the country, monuments to systemic mismanagement. Critics widely question whether these substantial new funds will genuinely finance productive assets or simply bankroll government consumption. The conspicuous absence of detailed project plans in the borrowing request, combined with the president’s rather lavish convoy, strongly suggests the latter.

When debt servicing already consumes more than the combined budgets for education and healthcare, Nigeria is not investing in its future; it is quite literally mortgaging the prosperity of generations yet unborn. Economists note that this is not the most opportune time for Nigeria to take on new debt, given the current global economic situation, as borrowings in different currencies will likely come at elevated interest rates. Concerns also exist about the potential need for refinancing, which could lead to even higher debt servicing costs.

The persistent weakening of the naira transforms dollar-denominated debt into a financial time bomb. The currency has lost nearly 70% of its value against the US dollar since 2020. This dramatic depreciation significantly inflates the Naira cost of servicing foreign loans, trapping the country in a vicious cycle. Seun Onigbinde, founder of BudgIT, highlighted this absurdity on social media, sharing Debt Management Office data: “Billion or million? Our total external debt as at December 2024 stands at $45.8bn.” He then followed with a stark question: “How do you attempt to borrow half of a country’s external debt in a single request? For what purpose?”

The government’s defence of this aggressive borrowing hinges on optimistic and dubious assumptions. Officials optimistically tout an improving debt-to-GDP ratio, conveniently overlooking that GDP growth remains anaemic and dangerously dependent on volatile oil revenues. While celebrating a reduction in the debt service ratio from 120% to 64% of revenue, this “improvement” still means well over half of government income is swallowed by debt servicing.

The promised infrastructure boom, with grand pronouncements of “airports and railroads,” rings hollow given Nigeria’s infamous history of project mismanagement. Government assurances about increasing oil production to 1.8 million barrels per day sound increasingly fantastical, as Nigeria has consistently failed to meet its OPEC quota for years.

In response to widespread concerns, the government clarifies that the requested $21.5 billion borrowing is a planned limit over several years, not a lump sum to be borrowed at once. Specifically, $1.3 billion is planned for 2025 for designated projects. Officials state that the debt-to-GDP ratio was 52% in 2020, and the debt service-to-revenue ratio was 64% as of December 2024, down from 120% in December 2022. They assert Nigeria has never defaulted on its loans and is working to increase tax revenue and diversify the economy.

However, civil society leaders like Seun Onigbinde continue to demand greater transparency. In an interview, Onigbinde questioned the necessity of the $21.4 billion external debt, given increased revenue from fuel subsidy removal and rising oil production. He stressed that loans should be directed towards self-liquidating assets or foreign exchange-generating ventures, lamenting the lack of clarity on how past borrowings were utilised. He called for the government to “over-explain” its intentions to mitigate public distrust and criticised fiscal inefficiency, citing questionable spending on palace renovations and boreholes.

Civil society groups also warn that Nigeria risks sliding into a catastrophic debt trap, a scenario where an ever-increasing share of its revenue is consumed by debt servicing, leaving virtually nothing for essential development. The national assembly bears immense responsibility in this critical juncture. It must courageously reject this reckless borrowing spree. Approval would constitute gross negligence, effectively binding future generations to unsustainable financial obligations. Instead, lawmakers should demand detailed project plans, matching spending cuts, independent oversight, and a credible plan to boost non-oil revenue.

Nigeria faces a binary choice: continue down the path of destructive borrowing or embrace genuine, painful, but ultimately redemptive fiscal reform. The current approach – taking on massive debt while stubbornly maintaining business-as-usual, wasteful spending – isn’t just unsustainable; it’s an act of national self-harm. The time for decisive intervention is now – tomorrow may very well be too late.

Nwanze is a partner at SBM Intelligence