Executive Snapshot
Core Diagnosis
Nigeria’s sharp increase in public debt between 2023 and 2026 reflects more than macroeconomic shocks or revenue weakness. It reveals a deeper and more persistent constraint: limited state capacity to convert borrowed resources into productive assets, durable service delivery, and growth. Borrowing expanded because revenue mobilisation remained structurally weak, public financial management (PFM) systems were fragmented, project execution capacity was uneven, and accountability mechanisms struggled to trace debt to outcomes. In this context, debt functions less as an autonomous policy failure than as a symptom of institutional performance constraints that reduce the productivity of borrowing itself.
Governance Implication
Debt sustainability in Nigeria cannot be assessed through borrowing levels alone, nor can it be reduced to institutional weakness in abstraction. It depends on the interaction between revenue-raising capacity, expenditure execution quality, and the enforcement mechanisms that convert financing into public value. Weak coordination across the Debt Management Office (DMO), Budget Office of the Federation, Bureau of Public Procurement (BPP), Office of the Auditor-General, and implementing MDAs constrains the developmental returns on borrowed funds. Strengthening the entire PFM chain is therefore central to both capacity improvement and debt sustainability.
Key Data Points
N159trn – Nigeria’s total public debt by end-2025.
4-4.5% – of GDP Fiscal deficits
10-11% – tax-to-GDP ratio
<70% Capital budget implementation
40% states borrowing to fund projects
Central Argument
Nigeria’s debt challenge is a state-capacity problem. Borrowing has expanded because the state has struggled to raise sufficient revenue, control recurrent spending, execute capital projects on time, and trace debt-financed expenditure to measurable public outcomes
Policy Watch
Policymakers should monitor debt-service-to-revenue ratios, tax-to-GDP performance, capital budget execution rates, procurement disclosure compliance, and project-level outcomes of debt-financed spending. Improvements in debt-project traceability and non-oil revenue growth between 2026 and 2028 will be the clearest indicators of whether borrowing is generating public value or merely financing recurring fiscal pressures.
Strategic Context
Why Borrowing Accelerated
Between 2023 and 2026, Nigeria’s fiscal authorities operated under overlapping reform and stabilisation pressures. Fuel subsidy removal in May 2023 represented the most consequential fiscal policy shift in over a decade. Retail petrol prices moved from the pre-reform level of below N200 per litre to an NBS-reported national average of N750.17 per litre by June 2024, transmitting inflationary pressure across transport, food distribution, and household services. Headline inflation reached 34.19 per cent in June 2024, while food inflation rose to 40.87 per cent in the same month.
Exchange-rate unification compounded these pressures. Liberalisation of the foreign-exchange market triggered sharp naira depreciation, increasing the domestic-currency cost of external debt service, imported inputs, and externally financed projects. These adjustments generated immediate fiscal demands: wage negotiations led by the Federal Ministry of Labour and Employment, transport support measures coordinated through the Presidency and state governments, and expanded social-transfer commitments through the National Social Safety Nets Coordinating Office and related social-protection programmes.
Nigeria’s tax-to-GDP ratio persisted near 10–11 per cent, far below the African average of roughly 16 per cent. In this context, borrowing became the primary instrument for managing reform transition costs. This pattern reflects a sequencing failure: subsidy and exchange-rate reforms moved faster than the systems required to cushion households, identify beneficiaries, release project funds predictably, and verify implementation. The offices that control this opacity are not vague. They include the Federal Ministry of Finance and Coordinating Minister of the Economy, Budget Office of the Federation, Office of the Accountant-General of the Federation, Bureau of Public Procurement, Debt Management Office, implementing MDAs, and federal and state legislative committees that approve borrowing and appropriation without consistently enforcing debt-to-project disclosure.
Institutional dimension
The Public Financial Management Chain: Where Borrowing Creates—or Destroys—Public Value
Nigeria’s debt outcomes are shaped not at the point of borrowing alone, but across the full PFM chain:
Borrowing → Allocation → Procurement → Implementation → Monitoring → Audit → Evaluation
Formally, institutional mandates are clear. The DMO manages borrowing strategy and debt reporting; the Budget Office integrates borrowing into fiscal planning; the BPP regulates procurement; MDAs execute projects; the Office of the Accountant-General controls releases and payment processing; the Office of the Auditor-General audits expenditure; and the National Assembly and state assemblies provide oversight. In practice, the chain is only as strong as its weakest enforcement point.
Between 2023 and 2025, recurrent expenditure, including personnel costs and debt service, absorbed over 65 per cent of federal spending, while capital expenditure averaged below one-third of the budget. Within capital allocations, execution rates frequently remained below 70 per cent due to procurement delays, delayed releases, cash-management constraints, and weak project-management capacity.
A significant share of new borrowing took the form of general or budget-support facilities. While such instruments provide short-term fiscal flexibility, they weaken traceability between debt inflows and sectoral outcomes. The result is a system in which borrowing stabilises cash flow but does not reliably expand productive capacity.
The extensive use of central-bank financing through Ways and Means advances prior to securitisation further illustrates institutional strain. The DMO’s public debt statistical bulletin records that the securitisation of N22.7 trillion Ways and Means advances was added to the public debt stock in June 2023. This blurred the boundary between monetary financing and debt-funded expenditure. Although securitisation improved formal disclosure, it also showed how borrowing had become embedded in routine fiscal operations rather than reserved for exceptional investment decisions.
The core issue is therefore not institutional absence, but coordination weakness, incomplete disclosure, and limited enforcement across the PFM chain.
Evidence and Data
Debt in Practice: Sectoral Performance
● Electricity: Borrowing Without Performance
Nigeria secured substantial multilateral financing for electricity-sector reforms between 2023 and 2025, including World Bank–supported transmission and distribution interventions approved under specific project envelopes. Despite this, Aggregate Technical, Commercial, and Collection (ATC&C) losses remained above 40 per cent, and average daily grid supply increased only marginally relative to estimated demand.
Here, the thesis is demonstrated rather than asserted. Financing availability was not the binding constraint. Institutional weaknesses, distribution governance, tariff collection enforcement, and regulatory capacity, limited returns on debt-financed investment. This sector shows clearly how borrowing without execution capacity produces weak outcomes.
● Road Infrastructure: Borrowing Without Delivery
The transport sector provides the clearest evidence of institutional failure at the project level.
Case 1: Lagos–Ibadan Expressway
a. Initial award: 2013 (revised contract under multiple administrations)
b. Contractor: Julius Berger Plc
c. Estimated cost: N167 billion (subject to revisions)
d. Funding pattern: Multiple appropriations (2016–2025)
e. Outcome: Delayed completion due to funding gaps, right-of-way disputes, and redesigns
Despite continuous funding, delays persisted, indicating execution constraints rather than funding shortages.
Case 2: Abuja–Kaduna–Zaria–Kano Road (AKZK)
a. Award: Multi-phase project initiated pre-2017
b. Contractors: Julius Berger Plc and others
c. Funding: Repeatedly appropriated across budgets
d. Issue: Sections remained incomplete as of 2025
This illustrates recurrent re-financing without proportional progress, a classic execution failure.
Case 3: Enugu–Port Harcourt Expressway
a. Contractor: RCC Nigeria Ltd
b. Status: Multi-phase rehabilitation with extended completion timeline
c. Observed issue: Recurrent delays despite ongoing releases
Audit Evidence: The Cost of Weak Execution
In December 2025, the Independent Corrupt Practices Commission (ICPC), in collaboration with the Federal Ministry of Works, launched an audit of:
a. 760 road projects
b. Total value: over N36 trillion
The audit found:
a. Projects with more than 80 per cent financial disbursement but less than 60 per cent physical completion
b. Contractor demobilisation
c. Procurement disputes
d. Cost variations
This audit provides direct institutional verification of execution failure.
What the Evidence Shows
The transport evidence demonstrates a full traceable chain:
Borrowing → Budget allocation → Contract → Funding → Incomplete execution → Audit confirmation
This indicates the empirical proof of the argument.
States: More Revenue, Continued Borrowing
Subnational governments account for roughly one-fifth of Nigeria’s public debt stock. Following subsidy removal, FAAC allocations increased significantly in nominal terms, yet borrowing persisted. Over 85 per cent of states maintained active debt positions annually, while fewer than 40 per cent published comprehensive project-linked debt disclosures.
Internally generated revenue remained weak. In most states, IGR constituted less than 25 per cent of total revenue. This reinforced dependence on federal transfers and borrowing, while uneven technical capacity within state finance ministries and assemblies constrained oversight. Increased allocations without institutional strengthening did not reduce borrowing reliance.
Political Economy
Why the Incentives Favour Opacity
Borrowing during this period reflected rational policy choices under institutional and political constraints. Wage negotiations, electoral incentives, and federal–state bargaining all favoured borrowing over tax increases in a high-inflation environment. Visible infrastructure projects retained political appeal, while tax reform imposed diffuse costs and concentrated resistance.
Opacity persists because it benefits multiple actors. Project-level disclosure constrains discretionary allocation, exposes procurement practices, and limits the political utility of debt-financed spending. Actors who benefit from non-traceability, including contractors, political intermediaries, and some subnational executives, have weak incentives to support enforcement.
Without addressing these incentives, recommendations that assume voluntary compliance by institutions such as the DMO, BPP, or state assemblies are unlikely to be realised. Reform therefore requires coalition building: aligning fiscal authorities, legislatures, civil society, and development partners around enforceable disclosure norms.
Comparative Insights
Sequencing Reforms for Better Debt Outcomes
Indonesia offers the stronger comparator for Nigeria because its experience shows that fiscal reform works better when social-protection systems are ready before subsidy removal becomes politically and socially destabilising. Indonesia’s fuel-subsidy reforms were not treated only as a price adjustment. They were paired with compensation measures delivered through beneficiary-targeting systems, cash-transfer channels, and administrative coordination between fiscal authorities and social-protection institutions. The lesson for Nigeria is direct: subsidy removal by the Presidency and the Federal Ministry of Finance required a beneficiary database, payment infrastructure, and grievance-redress system strong enough to cushion transport workers, low-income households, small traders, and rural consumers before inflationary pressure spread through the economy.
India’s Direct Benefit Transfer system provides a second, but more limited, lesson. Its relevance is not that Nigeria can mechanically copy India’s biometric architecture. Rather, it shows the fiscal value of linking identity, treasury payments, and programme monitoring. India’s DBT Bharat platform connects beneficiary identification, scheme-level payment records, and direct transfer channels, reducing the discretion that often enables leakage. For Nigeria, the equivalent reform route would require stronger integration between the National Identity Management Commission, National Social Register, Office of the Accountant-General of the Federation, Federal Ministry of Humanitarian Affairs and Poverty Reduction, and state-level social registers.
Nigeria’s constraint is therefore not the absence of reform ambition. It is that subsidy removal, exchange-rate liberalisation, and borrowing expansion advanced before the country had a fully reliable delivery architecture for social protection. Social-protection coverage remained limited during the reform transition, increasing reliance on borrowing to manage adjustment costs. The comparative lesson is specific: debt becomes more productive when fiscal reform is sequenced with beneficiary identification, digital payment systems, project traceability, and independent monitoring.
Reform Priorities and Targets
Strengthening State Capacity
A. Debt–Project Transparency
Lead: Debt Management Office, working with the Federal Ministry of Finance, Budget Office of the Federation, and National Assembly Committees on Finance, Appropriations, and Aids, Loans and Debt Management.
Target: Publish project-level details for 100 percent of new external and domestic borrowing by end-2026, including loan amount, creditor, implementing MDA, project title, location, procurement status, expected completion date, and disbursement status.
Risk: Resistance is likely from implementing MDAs, state governments, contractors, and political intermediaries that benefit from non-traceable borrowing and broad budget-support descriptions.
Mitigation: Make debt-project disclosure a precondition for National Assembly loan approval and Federal Executive Council project approval. The DMO should attach a debt-project disclosure schedule to every new borrowing request, while the Budget Office should require the same schedule before including debt-financed projects in the annual Appropriation Bill.
B. Capital Expenditure Efficiency
Lead: Budget Office of the Federation, Office of the Accountant-General of the Federation, Federal Ministry of Finance, and implementing MDAs.
Target: Raise federal capital budget execution from below 70 per cent to at least 85 per cent by FY2027, measured by both cash release and verified physical completion.
Risk: The main constraint is not only cash availability. It is the combined effect of late procurement planning, delayed warrant releases, weak project scheduling, and MDAs submitting capital projects without implementation-ready designs.
Mitigation: Require every MDA to submit a quarterly capital release and implementation calendar to the Budget Office and Office of the Accountant-General. Capital releases above an agreed threshold should be tied to procurement readiness, site possession, contract milestones, and implementation reports uploaded to a public dashboard.
C. Procurement Disclosure
Lead: Bureau of Public Procurement, Office of the Accountant-General of the Federation, Budget Office of the Federation, and Federal Executive Council Secretariat.
Target: Publish 90 per cent of contracts above N500 million within 30 days of award, including contractor name, contract sum, procurement method, project location, completion timeline, and approving authority.
Risk: Compliance evasion will come from MDAs using emergency procurement, fragmented contract packaging, delayed uploads, or vague project descriptions to avoid scrutiny.
Mitigation: Link procurement disclosure to payment approvals on the GIFMIS and Treasury Single Account payment chain. The Office of the Accountant-General should not process mobilisation payments for qualifying contracts unless the BPP disclosure record is complete. Where legal reinforcement is needed, the National Assembly should amend the Public Procurement Act to make publication of large contracts a mandatory condition for payment, not merely a transparency preference.
D. Revenue Mobilisation
Lead: Federal Inland Revenue Service, Joint Tax Board, Federal Ministry of Finance, and state internal revenue services.
Target: Increase non-oil tax-to-GDP to 13 per cent by 2028 without relying primarily on rate increases that deepen pressure on compliant taxpayers.
Risk: Political resistance will come from high-income professionals, politically connected businesses, informal-sector operators, and state-level actors that benefit from weak taxpayer registration and fragmented enforcement.
Mitigation: Prioritise taxpayer-base expansion, digital filing, e-invoicing, customs-tax data sharing, and integration of FIRS, Corporate Affairs Commission, Nigeria Customs Service, and state revenue databases. Implementation should begin with sectors where income visibility is already high, including telecoms, banking, oil and gas services, professional services, and large wholesale trade.
E. Independent Debt Performance Audits
Lead: Office of the Auditor-General of the Federation, working with ICPC, BPP, DMO, Budget Office of the Federation, and National Assembly Public Accounts Committees.
Target: Conduct annual performance audits covering at least 75 per cent of debt-financed capital projects by value.
Risk: The Auditor-General’s office faces capacity, funding, and access constraints, while implementing MDAs may delay records, dispute audit scope, or provide incomplete project documentation.
Mitigation: Establish a dedicated Debt-Financed Projects Audit Unit within the Office of the Auditor-General, supported by ICPC project-tracking capacity and BPP procurement data. Audit reports should classify projects by loan source, MDA, contractor, state, amount disbursed, physical completion, and variance between financial release and project delivery.
Priority Actions
First, the DMO and Budget Office should make project-level debt disclosure mandatory for all new borrowing from 2026, so that every loan can be traced to a named project, MDA, state, and expected output.
Second, the Budget Office and Office of the Accountant-General should link capital releases to implementation readiness, not merely budget approval.
Third, the BPP and Office of the Accountant-General should connect procurement publication to payment approvals so that undisclosed contracts above N500 million cannot receive mobilisation payments.
Fourth, FIRS and the Joint Tax Board should focus revenue mobilisation on taxpayer-base expansion, data integration, and compliance systems rather than blunt tax increases. Fifth, the Auditor-General, ICPC, and National Assembly Public Accounts Committees should institutionalise annual debt-performance audits that compare financial disbursement with physical completion.
Risk Outlook, 2026–2028
Baseline: Debt grows moderately; debt service remains above 60 per cent of revenue.
Downside: Exchange-rate shocks, high domestic interest rates, and weak non-oil revenue growth push debt service above 75 per cent, crowding out capital spending and forcing new borrowing to finance old obligations.
Upside: Revenue gains, procurement discipline, and project-execution improvements reduce new borrowing needs by 15–20 per cent.
Conclusion
From Borrowing to State Capacity
The governance warning is clear: if Nigeria enters the 2026–2028 fiscal window with debt service still absorbing most federally retained revenue, capital spending will become the adjustment item, and borrowing will increasingly finance fiscal survival rather than national development. The risk is not theoretical. It will appear in delayed road projects, underfunded transmission infrastructure, weak state counterpart funding, unpaid contractor obligations, and social-protection programmes that exist on paper but do not reach households at scale.
Nigeria’s rising public debt is therefore not merely a function of borrowing decisions. It reflects a fiscal system in which the Federal Ministry of Finance, DMO, Budget Office, BPP, Office of the Accountant-General, Auditor-General, MDAs, and legislative oversight committees do not yet operate as one enforceable chain from loan approval to public outcome. Until that chain is made visible, audited, and politically enforceable, higher borrowing will continue to deliver lower public value.
The central risk is not debt itself. The risk is a system in which borrowing substitutes for governance capacity rather than enabling it.