Is Nigeria sliding into a debt trap?

In 2026, Nigeria stands at a crossroads: mounting debt and economic hardship raise a crucial question—can the nation afford to borrow more, or must it chart a new fiscal course?

Nigeria’s debt debate has reached a boiling point.

In May 2026, the World Bank faced backlash from ordinary Nigerians after reports of a fresh $1.25 billion loan request by the Tinubu administration.

Nigerians criticised rising debt amid persistent economic hardship, questioning whether borrowing remains affordable.

The World Bank had to suspend its comment section on its social media channels due to the sheer volume of comments. This public reaction highlights the central question: Can Nigeria’s current fiscal path sustain more borrowing, or is it already unsustainable?

According to data from the Debt Management Office, Nigeria’s total public debt increased from about N49.85 trillion in early 2023 to over N159 trillion by December 2025, while the country’s debt-to-GDP ratio is projected to remain moderate at 32 to 35 per cent in 2026, which is below the high-risk threshold identified by the IMF. The key issue, however, is not total debt, but the Debt Service-to-Revenue Ratio.

The 2026 Federal budget projected N15.9 trillion in debt service against N33.39 trillion in projected revenue, translating to a debt-to-GDP ratio of 48%.

According to a report from Businessday NG, debt servicing consumed 64.5 per cent of Nigeria’s total federal revenue in 2023, highlighting that the projected Debt Service to Revenue ratio of 48 per cent for 2026 in the budget may be overly optimistic given the recent weak revenue performance.

According to recent projections from the Nigerian Economic Summit Group, the Debt-to-Revenue ratio for Nigeria in 2025 is expected to range from 90% to 130%. Because oil prices are sky-high, Nigerian oil production is down, output is not growing fast enough, and a revenue shortfall is already looming. The prayer is that the tax reform kicks in and that more revenue flows in.

Let’s do actual reality. In January 2025 alone, debt service hit N696 billion, against N483 billion in retained revenue, translating to a 144% debt-to-service ratio. Q1 2025 averaged ~113% according to NESG reports.

In Q1 2026, the government recorded a N2.24 trillion tax revenue shortfall (only N7.44 trillion was generated against a target of N9.68 trillion). If 2026 actual revenue lands between N20–25 trillion instead of the optimistic N33.39 trillion, the debt service ratio could easily climb back into the 90–120% range — meaning the government would likely need to borrow just to service existing debt.

Expenditure has ballooned, too. The 2026 budget stands at N68.32 trillion, with massive recurrent spending and debt service crowding out capital projects. This pattern has persisted since 2023: revenues grow nominally but lag far behind ambitious targets, while borrowing fills the gap.

Looking at Debt-to-GDP vs Debt Service-to-Revenue, we see a critical Contrast. Debt-to-GDP (32–35%) suggests Nigeria still has borrowing headroom on paper. Many countries with higher ratios manage their debt comfortably because they generate enough revenue relative to their economy.

Debt Service-to-Revenue, however, reveals Nigeria’s vulnerability. When over 50% (and sometimes over 100%) of revenue goes to creditors, fiscal space collapses.

Capital expenditure — vital for long-term growth — gets squeezed. Analysts describe Nigeria as having a “low debt stock, high debt pain” scenario. The main argument is that while Nigeria technically still has borrowing capacity, current revenue trends make further borrowing risky.

Much recent borrowing is used to service debt, worsening vulnerability. Nigeria now faces a clear choice: continue borrowing and risk economic pain, or pursue prudent, targeted borrowing with strong revenue reforms to foster growth.

Risks of excess debt overhang are numerous; there is the political risk of continued borrowing amid public perception of a lack of results, which fuels public distrust (as seen in the World Bank comments saga).

The Naira depreciation has already inflated external debt service costs. Oil revenue volatility makes fiscal planning difficult. Rising domestic interest rates are also increasing local borrowing costs. Crowding out of private sector credit.

Borrowing is not inherently negative; countries achieve prosperity by investing in assets that expand their revenue base. For Nigeria, the distinction between productive and unproductive borrowing is central: borrowing for consumption amplifies debt pain, while borrowing for investment can drive growth.

The main argument is that, given persistent revenue shortfalls and a lack of transparency in outcomes, only prudent, targeted borrowing, combined with aggressive revenue reforms and efficient spending, can turn debt into prosperity and resolve Nigeria’s debt dilemma