The Debt Trap and Danger of Over-Leveraging a Nation in Hyperinflation: How Nigeria’s Borrowing Spiral Is Deepening the National Crisis -By Daniel Nduka Okonkwo

Nigeria is entering a critical fiscal phase defined by one dominant contradiction: record-breaking borrowing on one side and persistently weak, visible development outcomes on the other. For millions of citizens facing rising food prices, unstable transport costs, collapsing purchasing power, and growing economic uncertainty, the central question is no longer whether the government is borrowing, but whether that borrowing is producing measurable national value or simply deepening a structural debt burden that future generations will be forced to carry.

Between January and September 2025, federal debt servicing consumed approximately ₦12.63 trillion, while capital releases stood at roughly ₦3.1 trillion within the same period. This means debt obligations consumed more than four times the amount released for infrastructure and development, according to figures from the 2025 amended budget implementation report sourced from the Office of the Accountant-General of the Federation and the Budget Office of the Federation. In practical terms, significantly more public revenue was spent repaying interest and principal on debt than building roads, schools, hospitals, power infrastructure, or other productive national assets expected to expand long-term economic capacity. Of the ₦23.44 trillion budgeted for capital projects for the full 2025 fiscal year, only ₦3.10 trillion, roughly 13 percent, had been released by the end of September.

This imbalance is no longer marginal. It is structural.

By December 2025, Nigeria’s total public debt had risen to ₦159.28 trillion, according to figures released by the Debt Management Office (DMO). That represents one of the fastest debt expansions in the country’s democratic history, marking a year-on-year increase of ₦14.61 trillion or 10.1 percent from ₦144.67 trillion recorded in December 2024. In dollar terms, the debt stock stood at $110.97 billion by year-end. When distributed across Nigeria’s population, it translates to approximately ₦724,000 per citizen, a figure rising in real terms as inflation, unemployment, insecurity, and currency instability continue to intensify nationwide.

The central question emerging from these figures is increasingly unavoidable: what exactly is Nigeria borrowing for, and where is the measurable national return?

Borrowing itself is not inherently problematic. Governments across the world borrow to finance infrastructure, expand industrial capacity, modernise transport systems, strengthen energy production, improve education and healthcare systems, and stimulate long-term growth. However, borrowing becomes structurally dangerous when debt grows faster than productive investment, when repayment obligations begin consuming a majority of government revenue, and when new borrowing is increasingly used to service older debt rather than finance expansion.

That is the trajectory many analysts argue Nigeria is now approaching.

Nigeria’s debt-service-to-revenue ratio remains one of the most persistent fiscal concerns. For the full year 2025, total debt service rose to approximately ₦16 trillion, an increase of ₦2.98 trillion or 22.9 percent from approximately ₦13.02 trillion in 2024. When a growing share of government revenue is consumed by debt servicing, fiscal space for development contracts shrinks sharply, and the state becomes increasingly dependent on borrowing simply to maintain existing obligations. In this environment, borrowing shifts from being a development instrument to a survival mechanism.

External debt exposure has also risen significantly. Nigeria’s foreign debt increased from approximately $42.49 billion in December 2023 to $51.86 billion by December 2025, a 22 percent increase over two years. Multilateral loans account for the largest share at $23.19 billion, led by the World Bank with $18.3 billion in exposure. Bilateral loans stood at $6.2 billion, with China’s Exim Bank as the top bilateral creditor. This growing reliance on external financing has intensified vulnerability to exchange-rate shocks, particularly as naira depreciation increases the domestic cost of servicing dollar-denominated obligations.

Every depreciation of the currency inflates the real burden of external debt. Every increase in debt servicing reduces fiscal capacity for infrastructure and social investment. Every new borrowing cycle increases future repayment obligations that must ultimately be financed by taxpayers and future administrations.

At the same time, citizens continue to bear the direct economic consequences. Food inflation remains high and persistent. Transport costs remain unstable. Small businesses face rising operational pressure, particularly from energy costs and weak consumer demand. Manufacturers are squeezed by rising input costs and reduced purchasing power. Youth unemployment and underemployment remain structurally high.

Despite this, borrowing continues to expand.

Fiscal policy has increasingly relied on deficit financing. The 2026 federal budget, signed into law in April 2026 with a total expenditure of ₦68.32 trillion, includes ₦15.8 trillion for debt servicing, ₦15.4 trillion for recurrent expenditure, and ₦32.2 trillion for capital expenditure. The projected deficit stands at ₦23.85 trillion, roughly 4.28 percent of GDP against a projected revenue of approximately ₦34.33 trillion.

Historically, Nigeria has also relied on central bank-supported deficit financing mechanisms, including the Central Bank of Nigeria’s “Ways and Means” framework. The Debt Management Office has confirmed that the December 2025 debt figures include ₦22.71 trillion in outstanding Ways and Means advances from the Central Bank of Nigeria to the Federal Government. Economists have repeatedly warned that excessive reliance on such financing contributes to inflationary pressure and currency depreciation, eroding purchasing power and worsening cost-of-living conditions.

Government officials, however, have defended the borrowing strategy. On 29 April 2026, President Bola Tinubu stated: “If we have to borrow, we borrow. Borrowing is not leprosy; we just have to work hard to be able to pay for it.” His remarks followed approval of a $516.3 million loan for sections of the Sokoto Badagry Superhighway.

The administration maintains that borrowing is necessary for infrastructure expansion and economic stability. However, public accountability demands measurable outcomes rather than policy intent alone.

Independent fiscal institutions and analysts continue to question whether rising debt levels are being matched by proportional productive returns. BudgIT has also raised concerns about transparency gaps in public spending and limited disclosure of audited financial statements across agencies receiving statutory allocations.

Compounding these concerns is the structure of government expenditure itself. Nigeria allocates substantial annual resources to maintaining its political and administrative machinery. The 2026 federal budget allocates approximately ₦344.85 billion to National Assembly personnel costs alone, while total legislative expenditure exceeds ₦500 billion annually when overheads are included.

Concurrently, the Independent National Electoral Commission has been allocated ₦1.1 trillion and the National Judicial Council ₦341 billion, both under statutory transfers with limited public scrutiny. At the subnational level, additional administrative costs, including security votes and overheads, further increase fiscal pressure.

This structure places a disproportionate burden on national finances, particularly in a context where debt servicing already consumes a significant share of revenue. When governance costs remain high while revenue remains constrained, fiscal deficits widen. When deficits widen, borrowing increases. When borrowing increases faster than productive investment, debt pressure intensifies further.

This cycle has become central to Nigeria’s fiscal debate.

Nigeria also continues to pursue large external financing arrangements across infrastructure, agriculture, energy, housing, and digital connectivity. These include multi-billion-dollar borrowing plans and budget-support facilities aimed at sustaining fiscal operations and refinancing obligations.

As a result, Nigeria faces a chronic revenue imbalance, where state income is consistently outpaced by recurrent expenditure and debt obligations. Without structural reforms such as expanding the tax base, improving efficiency, reducing leakages, and enhancing transparency, analysts warn that the country risks remaining trapped in a long-term fiscal vulnerability cycle.

At the centre of this debate is governance cost and accountability.

Nigeria operates a large and expensive political structure while citizens continue to face worsening economic pressure. Critics argue that the scale of administrative expenditure, combined with opaque spending structures, contributes indirectly to rising borrowing needs.

Why does borrowing continue to rise while visible development outcomes remain limited? Why does government expenditure on political structures remain high while fiscal space for development is constrained? Why must citizens continue absorbing inflationary pressure while governance costs remain largely intact?

These questions are no longer confined to economic analysis. They have become governance questions and increasingly electoral questions ahead of 2027.

Public frustration is expanding beyond policy debate into broader civic demand for transparency, accountability, and measurable results.

Nigeria remains one of Africa’s most strategically significant countries, with vast natural resources, a large entrepreneurial base, and a young population. Its economic potential remains undeniable. However, potential alone does not repay debt.

Borrowing can support growth when properly managed. But when debt expands without proportional visible returns, it produces a different outcome: a heavily indebted state with shrinking fiscal space and rising public distrust.

Nigeria’s debt challenge is therefore no longer just an economic issue.

It is a governance issue, a transparency issue, and a test of whether public institutions can still justify the burden they place on citizens.

As Nigeria moves toward another decisive political cycle in 2027, the central question becomes unavoidable:

Will Nigeria’s borrowing build a stronger future or lock the country deeper into obligations its citizens can no longer sustainably carry?

Daniel Nduka Okonkwo is an investigative journalist, human rights advocate, and policy analyst based in Abuja, Nigeria. He is the publisher of Profiles International, a platform focused on accountability journalism, governance reporting, and the documentation of human rights issues across Africa. His work examines the intersection of political power, institutional accountability, systemic failure, and the human impact of corruption, with a particular emphasis on Nigeria and the wider African continent.

Okonkwo’s reporting and analysis have been published in Sahara Reporters, African Defence Forum, Daily Trust, Vanguard, Daily Intel, Opinion Nigeria, African Angle, Local Newsbreak, and other international media outlets. He is an advocate for transparency, democratic governance, and justice, and also collaborates with Daniels Entertainment on human rights initiatives that extend his work beyond traditional journalism.

He is based in Abuja, Nigeria, and can be reached at: dan.okonkwo.73@gmail.com.