IMF warns Nigeria will spend over half its revenue on debt servicing

Nigeria will shed more than half of its federal revenue into debt servicing by 2026, threatening to cripple funding for critical infrastructure, healthcare, and education.

According to the International Monetary Fund’s (IMF) latest country assessment, interest payments will consume a staggering 53.7 percent of government revenue in 2026, up from 40.8 percent in 2024, leaving the nation in a precarious fiscal squeeze despite its overall debt level being classified as statistically sustainable.

This debt-service ratio marks a steady increase from 53.2 percent in 2025. While the IMF expects the burden to ease marginally to 52.4 percent in 2027, the near-term outlook underlines severe limitations on the country’s public spending capacity.

Speaking on ARISE Television, Christian Ebeke, the IMF resident representative for Nigeria, explained that while the risk of sovereign debt distress remains “moderate,” the real threat lies in the high interest-to-revenue ratio rather than the total debt stock.

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Nigeria’s debt-to-GDP ratio currently sits comfortably in the mid-30 percent range, supported by a healthy mix of domestic and external borrowing with long maturities.

However, the liquidity strain means that for every naira collected in taxes, more than half is immediately diverted to creditors.

“When you have more than 50 percent of your tax collection devoted to repaying interest on your federal government debt, it leaves you very little room to actually pay for health, education, cash transfer, including security,” Ebeke warned.

To counter these fiscal vulnerabilities, the IMF is prioritising support for Nigeria’s domestic revenue mobilisation.

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Ebeke emphasised that the successful enforcement of recently enacted tax reforms will be critical to boosting government revenues. Crucially, these reforms must be balanced against pressing domestic crises, including high inflation, widespread poverty, and acute food insecurity.

Despite the heavy debt-servicing burden, the IMF’s Article IV report published on June 9 offered some positive macroeconomic forecasts.

The organisation projected improvements in Nigeria’s broader economic indicators, forecasting that average inflation will drop to 16 percent in 2026. Furthermore, gross international reserves are projected to strengthen significantly, rising from $40.2 billion in 2024 to $58.1 billion in 2026, and reaching $62 billion by 2027.