Nigeria still in high-risk debt zone despite fiscal gains – NESG

Nigeria remains classified within a high-risk debt environment despite recent fiscal improvements, according to a new assessment highlighted by the Nigerian Economic Summit Group (NESG), raising fresh concerns about the country’s debt sustainability trajectory and long-term macroeconomic stability.

The report suggests that while fiscal reforms and revenue improvements have been recorded in recent periods, Nigeria’s debt burden, rising debt servicing costs, and limited fiscal space continue to pose significant risks to economic growth and development planning.

Debt sustainability refers to a country’s ability to meet its debt obligations without resorting to excessive borrowing or undermining essential public spending. Economists assess it using indicators such as debt-to-GDP ratio, debt service-to-revenue ratio, and overall fiscal balance performance.

The Nigerian Economic Summit Group noted that despite government efforts to improve revenue generation, Nigeria’s fiscal position remains under pressure due to structural weaknesses in non-oil revenue collection and high recurrent expenditure obligations.

Nigeria’s public debt has continued to rise over the years, driven by budget deficits, infrastructure financing needs, exchange rate depreciation, and increased borrowing to fund development projects and social spending.

Analysts say that while debt can be a useful tool for financing development, excessive reliance on borrowing—particularly when revenue growth is limited—can create long-term fiscal vulnerabilities.

One of the key concerns highlighted is the high proportion of government revenue dedicated to debt servicing. A large debt service burden reduces the amount of public funds available for critical sectors such as education, healthcare, infrastructure, and social welfare.

The NESG report suggests that although fiscal reforms have improved some indicators, they have not yet been sufficient to move Nigeria out of the high-risk debt category.

Recent policy measures by the Federal Government, including subsidy removal, exchange rate adjustments, and tax reform efforts, are aimed at improving fiscal sustainability and increasing revenue generation.

The Central Bank of Nigeria has also implemented monetary tightening policies to control inflation and stabilize the currency, which indirectly affects government borrowing costs and debt dynamics.

However, economists caution that the benefits of these reforms may take time to fully materialize, especially given structural challenges in tax collection efficiency, informal sector dominance, and revenue leakages.

Nigeria’s economy is heavily dependent on oil revenue, making it vulnerable to global price fluctuations and external shocks. This dependence has historically constrained fiscal stability and increased borrowing needs during periods of revenue shortfall.

The NESG emphasizes the importance of diversifying revenue sources, particularly through non-oil sectors such as agriculture, manufacturing, technology, and services.

Improving tax administration and expanding the tax base are also considered critical steps toward reducing reliance on borrowing. Many analysts argue that Nigeria’s tax-to-GDP ratio remains low compared to peer economies.

Public expenditure efficiency is another key issue. Economists stress that reducing wasteful spending, improving budget implementation, and prioritizing productive investments are essential for improving fiscal health.

Infrastructure financing remains a major driver of public debt accumulation. While infrastructure investment is necessary for economic growth, concerns arise when borrowing is not matched by adequate revenue generation or project returns.

The NESG also highlights the need for stronger debt management frameworks to ensure transparency, accountability, and strategic borrowing decisions that align with long-term economic goals.

Currency depreciation has further complicated Nigeria’s debt profile, particularly for external debt obligations denominated in foreign currencies. Exchange rate volatility increases repayment costs in local currency terms.

Experts warn that without sustained fiscal discipline and structural reforms, Nigeria could face continued pressure on public finances, limiting its ability to fund development priorities.

Despite these concerns, analysts acknowledge that recent fiscal reforms represent positive steps toward improving macroeconomic stability. Policy adjustments aimed at improving revenue generation and reducing fiscal deficits are beginning to show gradual effects.

However, the transition to a more sustainable debt position requires consistent implementation of reforms, improved economic productivity, and stronger institutional capacity.

The NESG recommends a coordinated approach involving fiscal authorities, monetary institutions, and private sector stakeholders to address Nigeria’s debt challenges holistically.

It also stresses the importance of boosting economic growth, as stronger GDP expansion can improve debt ratios and enhance fiscal sustainability over time.

Nigeria’s long-term economic outlook will depend on its ability to balance borrowing for development with prudent fiscal management and diversified revenue growth.

For now, the assessment by the Nigerian Economic Summit Group underscores that despite recent fiscal gains, Nigeria remains in a high-risk debt category requiring continued reform efforts and policy discipline.