DMO warns debt costs could gulp 72 per cent of govt revenue

Nigeria’s debt service is projected to rise to 71.7 per cent of Federal Government revenue by 2030, from 60.6 per cent in 2024, raising concerns about the government’s ability to meet its debt obligations without further straining public finances.

The projection is contained in the Debt Management Office’s (DMO) 2024 Debt Sustainability Analysis (DSA) report, released yesterday. It exceeded the agency’s recommended threshold of 50 per cent.

Under the baseline scenario, the debt service-to-revenue ratio is expected to decline to 44.9 per cent in 2025 before rising to 51 per cent in 2026 and 57.1 per cent in 2027. It is projected to reach 57.4 per cent in 2028 and 67.3 per cent in 2029.

Already, Nigeria’s fiscal strain sharpened in the first half of 2026 as interest payments outpaced government revenue by N1.5 trillion, despite a 72 per cent surge in collections.

Recall that the Finance Minister and Coordinating Minister of the Economy, Taiwo Oyedele, defended the country’s position, countering concerns raised in the World Bank’s latest economic assessment.

The Ministry maintained that the ratio should not be interpreted in isolation, arguing that the interest figure includes obligations the Federal Government services on behalf of other tiers of government, including external loans to states.

The outlook is worse under a shock scenario, which projects the ratio to hit 97.3 per cent by 2030. The scenario assumes a 30 per cent depreciation of the naira, a two per cent contraction in real Gross Domestic Product (GDP) and a 2.5 per cent decline in revenue.

The baseline scenario, however, assumes an exchange rate of N1, 500 to the dollar, real GDP growth of 4.8 per cent and a primary balance of 3.8 per cent.

The DMO attributed the projected increase in debt service to the faster growth of debt obligations relative to government revenue, highlighting the pressure on public finances despite an expected decline in the country’s debt-to-GDP ratio.

Under the baseline scenario, public debt-to-GDP is projected to fall from 53.7 per cent in 2024 to 27.3 per cent by 2030. Under the shock scenario, it is expected to decline to 34.6 per cent.

The agency rated Nigeria’s debt sustainability as moderate but warned that it remained highly vulnerable to weak revenue mobilisation, exchange rate shocks and global uncertainties.

It identified three indicators that breached their respective thresholds. The average Eurobond spread stood at 975.58 basis points between October 2 and December 31, 2024, above the 600-basis-point threshold.

The yearly change in the share of short-term debt was 1.8 per cent, against the one per cent limit, a development the DMO linked to increased Treasury bills issuance. Non-residents also held 49 per cent of public debt, exceeding the 45 per cent threshold.

To address the risks, the DMO urged the Federal Government to sustain the removal of the petrol subsidy and maintain a unified, flexible exchange rate regime.

It also called for effective implementation of tax reforms, expansion of the tax base, improved tax compliance and more efficient public spending.

The agency further recommended that the government consider privatisation and the sale of public assets to raise revenue, while increasing its reliance on concessional loans to reduce borrowing costs.