The recent concerns expressed by the World Bank regarding Nigeria’s debt profile are neither new nor entirely misplaced. However, any serious analysis must begin with an honest acknowledgment of what constitutes that debt burden and how it evolved.
Nigeria is not grappling with a sudden explosion of profligacy. What confronts the present administration is a convergence of legacy liabilities—accumulated over many years—now crystallised into a heavy and immediate fiscal burden. Exceptionally high debt-service obligations have emerged, driven not only by the stock of debt but by its structure and cost. At the same time, large principal repayments are falling due in the near term, compressing already limited fiscal space.
Compounding these pressures is the securitisation of approximately ₦30 trillion in legacy Ways and Means advances, previously warehoused on the balance sheet of the Central Bank of Nigeria. In parallel, oil-backed obligations—some committing as much as 250,000 barrels per day of crude output—have effectively pre-allocated future revenues, thereby constraining fiscal flexibility. The burden is further intensified by electricity sector arrears and subsidies, now independently estimated and formally acknowledged at over ₦3.3 trillion, accumulated over the course of a decade.
The exchange-rate unification policy, though necessary and ultimately beneficial, has also had significant fiscal implications. While restoring macroeconomic credibility, it has sharply increased the naira-denominated cost of servicing external debt.
To illustrate the scale of this last point: official data from the Debt Management Office confirms that the naira depreciated to approximately ₦1,535/$ by end-2024, meaning that even unchanged dollar obligations now impose far higher domestic fiscal costs. This is not new borrowing—it is the revaluation of existing obligations under a more transparent and market-reflective foreign exchange regime.
The consequence is clear: Nigeria’s fiscal challenge is less about reckless accumulation and more about the delayed recognition of costs that were long obscured.
Yet the more fundamental issue—one consistently emphasised by the World Bank itself—is that Nigeria’s problem is not primarily debt, but revenue.
For decades, Nigeria has operated one of the lowest revenue-to-GDP ratios in the world, often below 10%. In such a context, even moderate borrowing becomes burdensome. It is therefore significant that recent data shows measurable improvement: federally collected revenues increased from 7.6% of GDP to 9.5% within a year, reflecting early gains from reforms in tax administration, subsidy removal, and oil revenue recovery.
This is the crux of the matter. A country that earns little cannot sustainably service even modest debt. Conversely, a country that raises revenue efficiently can carry significantly higher obligations without distress.
Although the dividends of tax reform are beginning to materialise—and appear capable of lifting Nigeria’s tax-to-GDP ratio into the double digits from its historically low range of 5–7%—the country’s fiscal potential remains significantly under-realised. Much greater progress could be achieved were it not for the absence of effective monetisation frameworks across large segments of the economy, particularly in the solid minerals and agricultural sectors, as well as within the vast informal economy.
In contrast to the hydrocarbons sector—where the Nigerian National Petroleum Company Limited (NNPCL) plays a central role in aggregating, commercialising, and monetising national resource endowments—there exists no equivalent institutional architecture for primary production. As a result, substantial portions of economic output, especially in agriculture and mining, remain only weakly captured within the formal fiscal net.
Well-functioning regional commodity exchanges could provide the necessary infrastructure for price discovery, standardisation, and aggregation of agricultural output, thereby improving traceability and expanding taxable value chains. In parallel, a properly structured Nigerian Mining Company Limited could assume a role analogous to that of NNPCL—partnering with private operators, formalising production, and ensuring that the state captures a fair share of value from mineral resources.
In their absence, much of the GDP generated by these sectors remains diffuse, informal, and fiscally elusive. The implication is clear: Nigeria’s challenge is not merely to tax more efficiently, but to monetise more comprehensively.
President Bola Ahmed Tinubu’s reform programme must therefore be understood as a deliberate unwinding of structural distortions, rather than a mere adjustment of fiscal aggregates. Exchange-rate unification has brought an end to years of arbitrage and opacity, while fuel subsidy removal has halted a fiscally ruinous regime that disproportionately benefited the affluent and intermediaries. Efforts to resolve power sector debt—anchored by the ₦3.3 trillion legacy settlement framework—are restoring credibility to that sector.
At the same time, tax reforms aimed at broadening the base, including the introduction of presumptive tax regimes, are widening compliance while protecting small and nano enterprises. Improvements in oil production and revenue capture are addressing theft, inefficiencies, and under-reporting, while a broader commitment to fiscal transparency and discipline is ensuring the proper recognition of previously hidden liabilities.
What emerges, therefore, is not a story of deterioration, but of transition—from opacity to transparency, from distortion to discipline, and from deferred reckoning to deliberate reform.
It is precisely because these reforms are now exposing the true cost of past practices that short-term indicators may appear strained. But this is the unavoidable price of credibility. Nations do not achieve fiscal sustainability by concealing liabilities; they do so by confronting them, restructuring them, and outgrowing them.
The World Bank’s concerns should thus be read not as a verdict of failure, but as a reminder of the scale of the inherited challenge—and, importantly, as validation of the need for the very reforms now underway.
Nigeria’s path forward is clear: it lies in raising revenues, rationalising expenditures, unlocking growth, and gradually restoring fiscal space.
That path has been chosen. The work, decisively, has begun.
Tanimu Yakubu, is Director-General, Budget Office of the Federation
