Debt Risks Persist As Services Drive Nigeria’s Growth – AfDB

Nigeria’s economic recovery is being increasingly driven by the services sector, signalling a gradual shift away from its long-standing reliance on oil, even as concerns mount over slow growth and rising debt pressures.

This is according to the African Development Bank (AfDB) ‘s Africa’s Macroeconomic Performance and Outlook report, which projects that Nigeria’s economy will grow by 3.7 per cent this year.

The report noted that Nigeria’s growth trajectory is being underpinned by stronger performance in non-oil sectors, particularly information and communication technology (ICT), financial services and real estate, which have emerged as key drivers of economic activity and resilience.

It stated that “growth in Nigeria is supported by the services sector, notably ICT, finance and real estate,” highlighting a structural transition in Africa’s largest economy and pointing to a gradual rebalancing of growth drivers.

The report pointed to improved macroeconomic conditions, including relative stability in the foreign exchange market, noting that gains in external reserves have helped ease volatility in the naira, thereby supporting business confidence and investment decisions.

“Nigeria will be aided by strong service-sector growth, especially in information and communication technologies, finance, and real estate, and by reduced exchange rate volatility thanks to higher foreign exchange reserves.”

However, despite these positive developments, the report emphasised that Nigeria’s overall growth performance remains modest compared to its regional peers.

The 3.7 per cent projected growth in 2026 places Nigeria below the West African average, as several smaller economies in the region expand faster. The report highlighted that countries such as Senegal and Côte d’Ivoire continue to post stronger growth rates, reflecting more robust economic momentum relative to Nigeria.

The report noted that while Nigeria’s growth outlook is improving, it remains relatively subdued and insufficient to drive transformative development outcomes.

It noted that the current pace of expansion may not be adequate to significantly reduce poverty, create jobs at scale or close infrastructure gaps.

Beyond growth concerns, the report identified rising debt vulnerabilities as a major risk to Nigeria’s economic outlook. It warned that increasing debt service obligations are placing significant pressure on public finances, limiting the government’s ability to fund critical development priorities.

It stated that Nigeria is among countries facing a high risk of debt distress, adding that “rising debt service costs are eroding fiscal space and limiting public investment.” This, the report cautioned, could constrain the government’s capacity to invest in infrastructure, education and healthcare, which are essential for long-term growth.

The report further emphasised that constrained fiscal space could weaken the effectiveness of policy interventions aimed at supporting economic recovery and social protection, particularly amid rising population pressures.

While services-led growth offers some insulation from oil price volatility, the report noted that Nigeria’s economy remains partly exposed to developments in the oil sector, particularly in terms of export earnings and fiscal revenues. As an oil-exporting country, fluctuations in global oil prices and production levels continue to influence overall economic performance.

It added that Nigeria’s growth outlook, though positive, remains vulnerable to both domestic and external shocks, including tightening global financial conditions, exchange rate pressures and commodity price fluctuations.

The report stressed the need for sustained reforms to consolidate the gains from the ongoing recovery and address structural bottlenecks. It noted that strengthening fiscal buffers, improving revenue mobilisation and enhancing the efficiency of public spending would be critical to managing debt risks and supporting inclusive growth.

Furthermore, it highlighted the importance of deepening economic diversification by strengthening non-oil sectors, improving infrastructure and fostering a more enabling business environment to attract investment.

It warned that without a significant acceleration in growth, Nigeria risks falling short of the levels required to achieve meaningful economic transformation, noting that higher and more sustained growth rates are essential to meet development objectives across the economy.