The Federal Government plans to allocate a significant portion of its budget to debt servicing between 2025 and 2027, outpacing allocations for capital expenditure.
This is based on the recently approved 2025–2027 Medium-Term Expenditure Framework and Fiscal Strategy Paper, which projects debt servicing costs at N50.39 trillion for the three years, surpassing the N48.93 trillion earmarked for capital expenditures.
The rising debt servicing costs, which are expected to grow by 26.7% from N15.38 trillion in 2025 to N19.49 trillion in 2027, pose concerns about fiscal sustainability.
For context, the FG spent N8.56 trillion on debt servicing in 2023, meaning the 2027 figure represents a staggering 127.7% increase in just four years.
During this period, debt servicing will consume 34.06% of total annual expenditure, while capital expenditure growth remains sluggish, increasing by only 0.18% from N16.48 trillion in 2025 to N16.51 trillion in 2027.
Debt servicing grows while capital spending stalls
A closer examination of the fiscal projections shows that in 2025, capital expenditure will constitute 34.44% of the total budget, marginally higher than the 32.11% allocated to debt servicing.
However, by 2027, debt servicing is projected to rise to 37.2% of total expenditure, compared to 31.51% for capital projects.
The figures reflect a troubling disparity: while debt servicing costs are increasing rapidly, capital investments remain constrained, potentially exacerbating Nigeria’s infrastructure deficit and hindering economic growth.
Justifying the increase in debt servicing costs, the MTEF/FSP document read: “The provision for debt service will increase significantly due to the size of the country’s debt and higher interest rate on borrowing following several adjustments of the MPR to 27.25% as of September 2024. We will rely on the Debt Management Office (DMO) to provide a debt service projection once we estimate the financing gap for the 2025 Budget.
“Efforts will be geared towards promoting a debt restructuring strategy to free up resources for increasing government spending on critical infrastructure with the decline in household and private sector spending. Non-commercial long-term facilities with tenors ranging between 10 and 50 years, with a significant moratorium of 5 to 7 years will be explored.”
For 2026, debt servicing will rise slightly by 0.9% to N15.52 trillion, while capital expenditure will dip by 3.28% to N15.94 trillion.
By 2027, the gap widens significantly as debt servicing costs climb by 25.58% to N19.49 trillion, compared to a modest 3.58% increase in capital spending. y
This trend could derail Nigeria’s development goals and deepen its infrastructure challenges.
The document added: “The fiscal space remains constrained by the rising cost of debt servicing, crowding out critical investments in infrastructure, healthcare, and education.”
New borrowings for rising deficits
- To finance its fiscal plans, the government intends to borrow an additional N31.24 trillion over three years, potentially driving Nigeria’s debt stock closer to N170 trillion by 2027, up from N134.3 trillion as of June 2024.
- Borrowing will primarily address budget deficits, projected at N13.08 trillion in 2025, N12.14 trillion in 2026, and N13.76 trillion in 2027. These deficits highlight the widening gap between revenue and expenditure, despite fiscal reforms such as subsidy removal and exchange rate unification.
- Domestic borrowing will dominate the debt mix, contributing N24.98 trillion of the total N31.24 trillion planned borrowing. In 2025, domestic loans will account for 80% of new debt, amounting to N7.37 trillion, while foreign borrowing is pegged at N1.84 trillion.
- By 2027, domestic borrowing will rise to N10.59 trillion, with foreign loans increasing modestly to N2.65 trillion.
The Debt Management Office has raised concerns over Nigeria’s ballooning debt stock and servicing costs, warning that the current trajectory poses significant risks to fiscal stability.