Nigeria’s public debt—now hovering around ₦159 trillion—is often presented in sterile fiscal language: deficit financing, capital expenditure gaps, and macroeconomic stabilisation. But strip away the technocratic varnish and a more troubling architecture emerges—one that looks less like development finance and more like a self-reinforcing extraction mechanism.
This is not merely a story about borrowing. It is about how Nigeria borrows, who benefits, and who ultimately pays.
The Mechanism of Debt: Approval Without Accountability
In theory, sovereign borrowing in Nigeria follows a constitutional pathway. The executive proposes, the National Assembly scrutinises, and approval is granted. In practice, this process often resembles a rubber stamp rather than a rigorous audit.
Loan requests—frequently bundled into omnibus approvals—pass through with limited forensic interrogation of:
- Project viability
- Procurement frameworks
- Repayment sustainability
Once approved, the Debt Management Office (DMO) moves to the international markets, issuing Eurobonds to eager investors attracted by Nigeria’s high yields. These instruments are priced with a risk premium, reflecting both macroeconomic volatility and governance concerns.
But the real leakage occurs downstream.
Funds raised for infrastructure and development routinely enter a procurement ecosystem plagued by:
- Inflated contract values
- Opaque bidding processes
- Political patronage networks
The result is a familiar cycle: borrowed funds are converted into contracts, contracts into rents, and rents into private accumulation—often with minimal corresponding public value.
Local Bank Extraction: The Safe Bet Economy
While international creditors take their share, domestic financial institutions have perfected a quieter, more elegant arbitrage.
Nigerian commercial banks, rather than extending credit to the real economy—SMEs, manufacturing, agriculture—prefer to lend to the federal government. Why?
Because it is:
- Virtually risk-free
- Highly liquid
- Generously yielding
Through treasury bills and federal government bonds, banks lock in double-digit returns backed by sovereign guarantees. No need to chase small businesses with uncertain repayment prospects when the government offers a safer, more profitable alternative.
This creates a structural distortion:
- Crowding out of private sector credit
- Stunted economic growth
- Financial sector profitability divorced from productive activity
In effect, banks are incentivised to fund government consumption rather than national production—earning handsomely while the broader economy stagnates.
The Debt Servicing Spiral: Borrowing to Stay Afloat
Nigeria’s fiscal position has now entered what economists would recognise as a debt servicing trap.
With over 90% of government revenue reportedly allocated to servicing existing debt obligations, the fiscal space for:
- Infrastructure
- Healthcare
- Education
- Social investment
has been effectively suffocated.
This is no longer traditional deficit financing. It is recursive borrowing—new debt raised primarily to service old debt.
The implications are severe:
- Rising debt stock without corresponding asset creation
- Increased vulnerability to interest rate shocks
- Gradual erosion of fiscal sovereignty
At this stage, debt ceases to be a tool of development and becomes a mechanism of survival.
Impact on Citizens: The Silent Transfer of Burden
The costs of this system do not disappear—they are simply transferred.
1. Fiscal Retrenchment
Under guidance—sometimes pressure—from multilateral institutions like the IMF and World Bank, Nigeria has pursued:
- Subsidy removals (notably fuel)
- Tax increases
- Tariff adjustments
While these policies may be defensible in orthodox economic theory, their implementation in a structurally unequal society disproportionately affects the poorest citizens.
2. Inflation as a Hidden Tax
Where revenue falls short and borrowing tightens, the Central Bank often steps in—directly or indirectly—expanding the money supply.
The result:
- Rising inflation
- Currency depreciation
- Collapse in real wages
For ordinary Nigerians, this manifests as a steady erosion of purchasing power—savings diluted, incomes stretched, and economic security undermined.
The Core Argument: System, Not Accident
It is tempting to frame Nigeria’s debt crisis as mismanagement or policy failure. That would be comforting—but incomplete.
A more uncomfortable thesis presents itself:
This is not merely a flawed system. It is a functional one—just not for the public.
The current debt architecture operates as a legally sanctioned pipeline:
- Public borrowing creates financial inflows
- Procurement channels convert these inflows into private gains
- Financial institutions profit from risk-free sovereign lending
- Citizens absorb the cost through austerity and inflation
All within the boundaries of legality, institutional process, and international financial norms.
Conclusion: Reform or Perpetuation
If Nigeria is to escape this cycle, the solution is not simply to borrow less—it is to restructure the incentives that make this system profitable.
That would require:
- Genuine legislative scrutiny of borrowing
- Transparent, competitive procurement systems
- Reorientation of banking incentives toward productive lending
- Fiscal discipline anchored in measurable public outcomes
Absent these reforms, the trajectory is clear: rising debt, shrinking public welfare, and a widening gap between those who benefit from the system and those who finance it.
And as the numbers climb—₦159 trillion today, more tomorrow—the question is no longer how much Nigeria owes.
It is who Nigeria’s debt truly serves.
Centre for Nigeria Progress 