Debt service is increasingly competing with development spending across Africa, with Nigeria among countries where interest payments on public debt have reached levels comparable with government health expenditure, the African Development Bank (AfDB) has warned.
Nigeria is among 25 African countries where public debt interest payments were at least comparable with government health expenditure between 2021 and 2023, according to the AfDB’s West Africa Economic Outlook 2026.
The finding highlights a fiscal constraint facing the federal government even as recent monetary and foreign-exchange reforms have helped improve Nigeria’s macroeconomic stability.
The AfDB said the growing cost of servicing public debt is crowding out expenditure required to improve living standards, raise productivity and build the infrastructure needed to support sustainable growth.
The report, titled “Mobilising West Africa’s Development Financing at Scale in a Fragmented World,” comes as Nigeria seeks to consolidate the gains from its economic reform programme while confronting weak revenue mobilisation, high financing costs and subdued investment inflows.
Debt burden remains high despite lower external debt ratio
Nigeria’s debt-service pressure remains significant despite an improvement in its external debt-to-GDP ratio.
The AfDB estimated Nigeria’s debt-service burden at 24.8 percent of exports in 2025, underscoring the amount of foreign earnings required to meet debt obligations.
External debt-to-GDP declined to 36.8 percent in 2025, from 40.5 percent in 2024. However, the ratio remains well above the 13–21 percent range recorded between 2017 and 2023, reflecting increased borrowing during the reform period.
The AfDB estimated that a one percentage-point increase in public debt is associated with a 4.9 percent decline in labour productivity and a 4.6 percent reduction in total factor productivity.
Revenue weakness limits fiscal room
Weak domestic revenue mobilisation remains one of Nigeria’s biggest constraints.
The country’s tax-to-GDP ratio improved from 5.2 percent in 2023 to seven percent in 2024, but remained the lowest among countries in the region, according to the AfDB.
Nigeria’s low tax collection also contributed to West Africa’s average tax-to-GDP ratio of 9.9 percent, roughly 10 percentage points below the 20 percent convergence benchmark of the West African Economic and Monetary Union.
The AfDB nevertheless acknowledged progress in Nigeria’s tax administration, particularly the deployment of the TaxPro-Max platform and the linkage of National Identification Numbers with Tax Identification Numbers.
More than 11 million taxpayers had been onboarded onto TaxPro-Max, the report said, indicating a widening tax base.
But the improvement has yet to translate into revenue levels capable of materially reducing the government’s dependence on borrowing.
Growth recovery faces financing test
The debt warning comes against a backdrop of improving macroeconomic conditions.
The AfDB projects West Africa’s economy to expand by about 4.7 percent in 2026, following growth of 4.8 percent in 2025.
Nigeria’s disinflation was identified as one of the factors supporting the region’s 2025 performance. The country’s inflation rate fell from 33.2 percent to 23 percent during the period following economic rebasing and other reforms.
The naira also stabilised during 2025 after losing about 70 percent of its value between the 2023–24 foreign-exchange liberalisation period and 2024, with deeper FX-market reforms and tighter monetary policy contributing to the subsequent improvement.
However, the AfDB cautioned that macroeconomic stabilisation alone would not guarantee stronger development outcomes.
The central challenge is now how Nigeria can convert improved stability into productive investment while managing the fiscal pressures created by debt servicing.
Nigeria struggles to convert investment into assets
The AfDB also raised concerns about the efficiency of public spending.
Nigeria recorded a public investment efficiency score of 0.46, placing it among the weaker performers in West Africa alongside Burkina Faso and Guinea.
This creates a double fiscal challenge for the government. Limited revenue means fewer resources are available for investment, while weak investment efficiency reduces the economic return generated from the resources that are deployed.
For the AfDB, improving public investment management is therefore as important as increasing the amount of money committed to infrastructure and other development projects.
Investment inflows remain below potential
Nigeria’s ability to supplement domestic resources with foreign capital also remains limited.
Foreign direct investment inflows were estimated at just $1.08 billion in 2024, despite the economic reform programme launched in 2023.
The AfDB said the subdued inflows highlighted the gap between policy ambition and investor confidence.
This presents another challenge for a country seeking to finance infrastructure and productive investment without placing additional pressure on public borrowing.
At the same time, Nigeria continues to benefit from strong remittance inflows. The country received $19.54 billion in remittances in 2024, accounting for about 36 percent of total remittance inflows into Sub-Saharan Africa.
The Nigeria Sovereign Investment Authority also mobilised $2.2 billion through global syndication in 2024–25, which the AfDB cited as an example of how institutional capital can be deployed to support infrastructure financing.
Financial market remains underdeveloped
Nigeria’s financial system provides some capacity for financing growth but remains relatively shallow compared with some African peers.
Stock-market capitalisation was equivalent to just 11.8 percent of GDP, compared with 277.1 percent in South Africa.
The banking sector, however, showed a comparatively healthier credit-risk position, with non-performing loans at 4.9 percent, below the five percent threshold recommended by regulators.
The figures indicate that Nigeria has a sizeable financial system but has yet to develop sufficient capital-market depth to mobilise the scale of long-term domestic financing required for infrastructure and economic transformation.
