When borrowing becomes a test of state capacity

Nigeria’s debt conversation is often framed too emotionally and too crudely, as though borrowing is automatically reckless and fiscal restraint is automatically virtuous. That is not how economies work. Governments borrow to smooth shocks, finance infrastructure, crowd in investment and accelerate growth. The more useful question is whether borrowed money is expanding productive capacity faster than it is expanding future obligations. That is where the Nigerian debate becomes serious. The National Assembly has just approved a ₦68.3 trillion budget for 2026, after an upward revision from the original proposal. Earlier budget parameters showed a projected deficit of about ₦23.85 trillion, debt-service provisions above ₦15.5 trillion, a crude benchmark of $64.85 per barrel and oil production assumptions of 1.84 million barrels per day. Those numbers tell a clear story: Nigeria is not merely financing ambition; it is managing a very narrow fiscal margin while trying to fund a very large national agenda.

The real issue is not debt alone

Nigeria’s problem is fundamentally a revenue problem

What makes Nigeria vulnerable is not that it borrows, but that it earns too little, too inconsistently, for an economy of its size and needs. The OECD’s latest country note puts Nigeria’s tax-to-GDP ratio at just 8.2 percent in 2023, while the average across 38 African countries stood at 16.1 percent. That gap is not a technical footnote; it is the heart of the matter. A country with weak and volatile revenues will make almost any debt stock look heavier than it should. This is why the borrowing debate cannot be separated from state capacity, tax administration, customs efficiency, oil receipts, and the broader discipline of public finance. The challenge is not simply to raise more money from citizens and firms, but to build a tax culture rooted in fairness, compliance, digitisation and reciprocity. Nigerians will tolerate a broader revenue net only when they can see roads improved, logistics costs reduced, power made more reliable and public services delivered with less leakage.

Debt sustainability is about cash flow, not headlines

The most recent official Debt Management Office data show Nigeria’s total public debt at ₦149.39 trillion as of March 31, 2025, split between ₦70.63 trillion in external debt and ₦78.76 trillion in domestic debt. On its own, that figure is alarming enough in public debate, but debt sustainability is not judged by big numbers alone. It is judged by what proportion of government income is swallowed by interest and amortisation before development spending can even begin. This is why a country can look moderate on one metric and distressed on another. The fiscal stress becomes more visible when debt service begins to compete directly with capital expenditure, social spending and transfers. In practical terms, that means the price of weak revenue mobilisation is paid not only in bond markets but in slower school construction, deferred hospital upgrades, thinner agricultural support and power projects that take too long to reach bankability. Debt, in other words, becomes a governance issue before it becomes a balance-sheet abstraction.

The oil assumption remains Nigeria’s familiar gamble

Even now, the budget still leans on oil assumptions that invite caution. The 2026 fiscal framework is built around 1.84 million barrels per day, yet Nigeria’s own energy leadership told Reuters in March that the country averaged about 1.6 million to 1.7 million barrels per day last year and hopes to average 1.8 million this year. Hope is not a strategy, particularly where oil theft, underinvestment, evacuation constraints and delayed project execution have repeatedly frustrated official targets. This does not mean the target is impossible, but it does mean the margin for disappointment is small. Any meaningful shortfall in volume, any renewed pressure on prices, or any disruption in external markets quickly spills into the naira, into reserves, into debt-service pressure and then into household welfare. A budget benchmark is not just a spreadsheet variable in Nigeria; it is a transmission mechanism linking pipelines, ports, foreign exchange, inflation and political confidence.

There are gains, but they are still fragile

To be fair, the macro picture is not one of total deterioration. The World Bank says Nigeria’s outlook remains cautiously optimistic, with growth projected to move from 4.2 percent in 2025 to 4.4 percent in 2027, supported by services, agriculture and non-oil industry. Inflation has also eased materially from the crisis levels seen a year ago, with Reuters reporting that headline inflation slowed to 15.06 percent in February 2026, though food inflation remained a pressure point. The World Bank also notes progress in revenue mobilisation and external balances, but adds an important warning: the gains have not yet significantly improved living standards. That is the correct caution. Macroeconomic stabilisation is not the same thing as household relief. A country can post better headline indicators while transport costs, food insecurity, credit constraints and weak real incomes continue to squeeze homes and firms. Nigeria’s reform story is therefore real, but incomplete. The statistics are improving faster than lived experience.

For government, the next step is not a slogan about cutting waste; it is the harder work of choosing what the state should actually finance and what it should deliberately stop financing. Borrowing should be ring-fenced around projects that raise productivity, improve logistics, unlock energy supply, deepen agricultural value chains and crowd in private capital. The era of borrowing for administrative comfort should be over. Equally urgent is revenue reform that expands the base without choking formal enterprise. Nigeria’s fiscal authorities need better property records, stronger digital enforcement, simpler compliance for small firms, cleaner customs processes and a more transparent federation revenue architecture. The World Bank has argued that the fiscal space created by recent reforms should now be used to improve the quality of spending and invest in human capital, social protection and infrastructure. That prescription is right. A state that asks more from the economy must also show that it can convert public money into public value.

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