Nigeria’s growing debt obligations are putting increasing pressure on government spending, with the African Development Bank (AfDB) warning that debt-service costs are competing with funding for critical sectors such as healthcare and social infrastructure. According to the AfDB’s newly released West Africa Economic Outlook 2026, Nigeria is among 25 African countries where interest payments on public debt between 2021 and 2023 were at least comparable to public health spending.
The warning comes as Nigeria continues efforts to stabilise an economy hit by naira depreciation and high inflation. The AfDB noted that Nigeria’s economic reforms contributed to West Africa’s strong growth in 2025, while inflation reportedly fell from 33.2 per cent to 23 per cent. The naira also showed greater stability during the year following foreign exchange reforms and tighter monetary policies, but the improvement has not removed the country’s underlying fiscal challenges.
One of the biggest concerns remains Nigeria’s debt-service burden, which the AfDB placed at 24.8 per cent of exports in 2025. Although the country’s external debt-to-GDP ratio declined from 40.5 per cent in 2024 to 36.8 per cent in 2025, it remains well above levels recorded before the current reform period. The Bank also warned that high public debt can hurt productivity, making it harder for economies to turn growth into better jobs, stronger businesses and improved living standards.
Weak revenue generation is adding to the pressure. Nigeria’s tax-to-GDP ratio increased from 5.2 per cent in 2023 to seven per cent in 2024, but the AfDB said this was still the lowest among countries in the region. There is, however, some progress through tax digitisation and the linkage of National Identification Numbers with Tax Identification Numbers. More than 11 million taxpayers have reportedly been onboarded through the TaxPro-Max system, giving the government a broader base from which to raise revenue without relying as heavily on borrowing.
The AfDB says Nigeria’s next challenge is to ensure that economic reforms translate into tangible improvements for ordinary citizens. The report identified tax administration, debt management and public investment efficiency as key priorities, noting that Nigeria’s public investment efficiency score of 0.46 suggests that too much investment may not be translating into productive assets. With West Africa’s economy projected to grow by about 4.7 per cent in 2026, Nigeria has an opportunity to build on recent progress—but reducing the pressure of debt service will be crucial if that growth is to deliver stronger infrastructure, better public services and more inclusive development.
source: The guardian
