$21.7bn Fresh Loan: Debt Service May Gulp Over 100% Of Revenues, Economists Warn

…Say plan threatens naira, reserves, fiscal stability

BY BUKOLA ARO-LAMBO AND OLUSHOLA BELLO Lagos

Economic analysts have warned that the federal Government’s plan to take on fresh external loans of about $21.7 billion could push the cost of servicing debt beyond 100 per cent of government revenue, with serious consequences for the naira, the country’s foreign exchange reserves and its fiscal stability.

The proposed borrowing, totalling $20.52 billion and €1.05 billion for 2026 and 2027, was presented to the Senate by President Bola Tinubu on Tuesday.

The analysts, who spoke with LEADERSHIP, said it raises hard questions about revenue mobilisation, the efficiency of previous loans and Nigeria’s capacity to sustain its debt obligations.

They said the government must show that existing borrowings have delivered commensurate economic benefits before taking on more. They also warned that rising debt-servicing costs, weak accountability, and pressure on foreign exchange reserves could undermine the country’s fiscal position.

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Professor of Economics and Business Intelligence at Lagos Business School, Bongo Adi, said the most pressing concern was the share of government revenue committed to debt service.

“The real challenge we have today is that the debt service to revenue ratio is extremely high. If we add this one, I’m sure it’s going to cross 100 per cent, meaning that everything the country is earning will be used to service debt,” he said.

Request Before The Senate

In a letter to Senate President Godswill Akpabio, read during plenary, President Tinubu asked the Senate to approve the supplementary external borrowing plan to fund projects across power, transportation, healthcare, agriculture, education, water supply, security and employment generation.

He said the loans would address Nigeria’s infrastructure deficit, bridge funding gaps and support socioeconomic development across the 36 states and the Federal Capital Territory. Tinubu said the projects had undergone technical and economic evaluations and urged the Senate to give the request urgent consideration to facilitate timely disbursement and effective implementation.

Debt service, not debt-to-GDP

President of the Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, said borrowing itself is not wrong, but Nigeria’s weak revenue base makes debt sustainability a concern.

“Nigeria’s debt sustainability is increasingly a concern, not necessarily because borrowing is wrong, but because revenue remains weak relative to our obligations. External borrowing is justifiable when it finances productive infrastructure that generates economic growth and revenue. The critical question is whether the returns will exceed the cost of borrowing,” he said.

Egbesola said the debt service-to-revenue ratio, not debt-to-GDP, is the most important immediate indicator to watch. He explained that it shows how much government income goes toward debt repayment rather than healthcare, education, and infrastructure, noting that “debt-to-GDP alone can give a misleading sense of comfort.”

Adi likewise said Nigeria’s debt sustainability should not be assessed solely through its debt-to-GDP ratio. He said that although the ratio might suggest room for additional borrowing, debt-servicing obligations relative to revenue posed a more serious challenge.

N30trn potential addition

Egbesola said Nigeria’s public debt stood at N166.79 trillion as at June 2026. He said the newly proposed borrowing, equivalent to about $21.7 billion, could add roughly N30 trillion at an exchange rate of N1,400 per dollar if fully disbursed.

“However, the exact change in debt-to-GDP and debt-service ratios depends on disbursement, loan terms, economic growth and revenue performance,” he said.

Questions over taxes, subsidy savings

Adi questioned the rationale for additional borrowing at a time when the government had undertaken tax reforms to increase revenue collection and had removed the petrol subsidy, while oil prices and crude production offered opportunities to strengthen public finances.

He said the government needed to explain how the additional revenue and subsidy savings were being deployed, and why more external loans were necessary despite the increased fiscal burden on citizens and businesses.

“You are taxing people, squeezing them, and then you are also borrowing on their behalf. You are putting the burden of debt on future generations. That is quite inconsiderate, and they haven’t come out to explain what is going on or what they are using the money for,” he said.

The professor warned that additional borrowing could also worsen inflationary and exchange rate pressures, particularly if the funds were not matched by increased production of goods and services. He further expressed concern that government borrowing was attracting a disproportionate share of available domestic financing, leaving the private sector with limited access to credit.

Threat to naira and reserves

Professor of Law and Developmental Economist Tayo Bello warned that the proposed borrowing would increase pressure on government revenue and the country’s foreign exchange reserves because the loans would be denominated in dollars and euros.

He said the government would need foreign currency to service and repay the loans, potentially putting additional pressure on Nigeria’s external reserves and the naira. “When you rely heavily on foreign currency denominated loans, that becomes a problem because you have to service those loans with foreign currency, and the pressure on the country’s foreign exchange reserves will be too much,” he said.

Egbesola made a similar point, warning that the new borrowing increases exposure to fluctuations in the dollar and the euro. He said a weaker naira will raise the local-currency cost of repayment and pressure foreign exchange demand.

“This risk is lower where loans finance projects that generate foreign exchange or strengthen domestic productive capacity,” he said.

Efficiency of past loans

Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, said the proposed borrowing was not surprising given the government’s revenue challenges. He noted that borrowing or selling assets were among the options available when revenue fell short of projections.

However, he warned that Nigeria could reverse the gains made from previous fiscal and economic reforms if it failed to improve the efficiency of public borrowing and expenditure. “It feels as if they are borrowing more. But all we can say is that we need to be careful to ensure that, when we find ourselves in this situation, all the efforts we have made do not take us back into the dark. We cannot afford to go back,” he said.

Olubunmi questioned the returns on previous borrowings, saying the government had yet to demonstrate sufficient efficiency in deploying borrowed funds to deliver economic and infrastructure improvements.

He said concerns over the cost of servicing debt relative to government revenue made it imperative for the authorities to explain the projects financed with previous loans and the benefits generated. “Borrowing is not bad, but from what we see, it doesn’t really feel as if we have been efficient in using those borrowings. If you compare the cost of what we are using with that of other countries, we should be getting better results from the borrowing we are undertaking,” he said.

Transparency and alternatives

Bello also raised concerns about transparency in public borrowing, calling on the government to provide a clear account of the country’s total debt and explain how borrowed funds had been utilised. He warned that continued borrowing without adequate accountability could deepen fiscal vulnerability and transfer a growing debt burden to future generations.

He urged the government to explore alternative funding arrangements, particularly public-private partnerships (PPPs), to finance major infrastructure projects instead of relying predominantly on public debt. He argued that roads, railways and other long term infrastructure projects could attract private investors willing to finance construction and recover their investments under agreed concession arrangements.

“Instead of the government borrowing to invest in that gigantic project, why can’t they consider public-private partnerships? If it is a public private partnership, multinational companies could participate and, based on the agreement, find a way to recover their investment,” he said.

Bello added that the government could also raise funds through the domestic money market, bonds and the capital market, depending on the nature of the projects and the country’s capacity to repay.

Revenue expansion, concessional loans

Egbesola urged the government to prioritise revenue expansion by improving tax compliance, reducing leakages, broadening the tax base and cutting wasteful expenditure.

“Where borrowing remains necessary, Nigeria should prioritise concessional, long-tenor loans for productive projects and carefully assess domestic borrowing to avoid crowding out private businesses. Borrowing must translate into measurable economic returns, jobs and stronger revenue, not simply bigger debt obligations,” he said.

Bello acknowledged that borrowing remained necessary to finance government activities, arguing that Nigeria could sustain additional debt if the funds were judiciously deployed. “The government would definitely borrow. But my recommendation on the borrowing pattern is based on the country’s capacity to borrow. Nigeria has a wide capacity to repay any loan it borrows if the money is utilized judiciously,” he said.

He nevertheless urged the government to exercise restraint and prioritise transparency, productive investment and alternative financing arrangements to limit the risks associated with rising external debt.