Can Nigeria escape the debt trap?

The revelation that Nigeria’s external debt surged by ₦30 trillion between June 2023 and June 2024 is nothing short of alarming. It raises fundamental questions about governance, fiscal responsibility, and the country’s economic trajectory. With external debt now standing at ₦63.07 trillion, up from ₦33.25 trillion a year earlier, this exponential rise paints a troubling picture of a nation spiralling deeper into financial dependence.

While the Tinubu administration has pointed to naira devaluation—47 percent over the past year—as a primary cause of this debt explosion, the justification falls short. The scale of borrowing far outpaces the visible impact of these funds on the lives of Nigerians. Basic infrastructure remains decrepit, healthcare is in shambles, and the education system teeters on the brink of collapse. Where, then, are these funds going?

“It is a bitter irony that the very institutions pushing for reforms to “stabilise” the economy are also extending loans to sustain a broken system.”

A detailed look at Nigeria’s creditors highlights the stark reality of its debt profile. The World Bank accounts for $16.32 billion of these loans, while China holds $5.07 billion as Nigeria’s largest bilateral lender. Borrowing in itself is not inherently problematic; it is a recognised tool for economic expansion. But borrowing without a clear strategy for productive use is not just reckless—it is ruinous.

The administration’s decisions are compounded by the support of global financial institutions like the IMF and World Bank, which backed the sudden removal of the fuel subsidy. While touted as necessary for fiscal stability, this policy shift has plunged millions of Nigerians into deeper poverty, as food, transportation, and energy costs soar. It is a bitter irony that the very institutions pushing for reforms to “stabilise” the economy are also extending loans to sustain a broken system.

Nigeria’s current debt woes are part of a broader failure to prioritise economic productivity. Over 50 multinational companies have exited the country in the past eight years, citing an uncompetitive business environment. These departures have cost Nigeria jobs, foreign investment, and economic stability. Meanwhile, a burgeoning debt-servicing obligation, now accounting for 46.96 perrcent of the national budget, leaves little room for investment in critical sectors like healthcare, education, and infrastructure.

The rising debt burden also fuels Nigeria’s security crisis. Banditry, kidnapping, and terrorism thrive in an environment of economic despair, with joblessness and poverty providing fertile ground for social unrest. It is a vicious cycle that demands urgent and deliberate action.

Read also: Nigeria: The road ahead

Nigeria’s fiscal crisis underscores the need for systemic reform. Restructuring the country’s bloated federal system is no longer a matter of political debate but an economic imperative. States and geopolitical zones must be allowed to control their resources, remitting an agreed percentage to the federal government. This approach would decentralise power, reduce financial inefficiencies, and curb Abuja’s insatiable appetite for loans.

Additionally, borrowing must be tied to productive investments, such as infrastructure and agriculture, with clear timelines for returns. The days of borrowing for recurrent expenditure must end. Lawmakers, too, have a critical role to play. They must abandon their laissez-faire attitude, scrutinising every loan request and demanding accountability for previously borrowed funds.

Nigeria cannot afford its current cost of governance. Public officeholders continue to enjoy outsized salaries and perks while ordinary citizens bear the brunt of higher taxes, increased fuel prices, and skyrocketing living costs. The Revenue Mobilisation, Allocation, and Fiscal Commission must take bold steps to slash emoluments and entitlements for public officials. Symbolic as well as substantive reforms are necessary to restore public trust.

Time is running out. Without a shift toward pragmatic, transparent, and sustainable fiscal policies, Nigeria risks further economic decline. Borrowing should not be eliminated but must be approached with caution and foresight. Each naira borrowed must be tied to measurable developmental goals.

The cost of inaction is dire. Nigeria’s rising debt is not just a number—it represents millions of lives affected, futures mortgaged, and a nation’s sovereignty undermined. The current administration must break free from the cycles of short-term fixes and chart a long-term path that prioritises productivity, equity, and growth.

To achieve this, Nigeria must implement a comprehensive reform agenda that addresses the root causes of its economic woes. This includes strengthening governance institutions, promoting transparency and accountability, and investing in education and healthcare. By fostering a conducive business environment, attracting foreign investment, and diversifying the economy beyond oil, Nigeria can unlock its potential and create a more prosperous future for its people.

The stakes could not be higher. It is time for bold action. By embracing these reforms, Nigeria can not only overcome its current challenges but also emerge as a global economic powerhouse. The future of Nigeria depends on the choices made today.