Debts Have Eroded Gains Of Subsidy Removal, Say Economists

Renowned economists have warned that Nigeria’s huge debt profile and poor spending culture are preventing citizens from feeling the expected benefits of fuel subsidy removal.

Prof. Gafar Ijaiya of the Department of Economics, University of Ilorin, and former regional manager of First Bank of Nigeria, Babatunde Salami, stated this during separate interviews with LEADERSHIP.

The economists said rising debt servicing costs, Naira devaluation and weak budget implementation are worsening economic hardship in the country.

Ijaiya said the removal of fuel subsidy ought to have stabilised the economy by now, but argued that “massive debt obligations” had absorbed most of the expected gains.

“There is nothing wrong with borrowing. If you don’t borrow, you may not survive because resources are limited. But Nigeria is highly indebted internally and externally, and most of what should have come from subsidy savings is already tied to debt servicing obligations,” he said.

According to him, Nigeria’s debt accumulation intensified after the 1986 Structural Adjustment Programme(SAP) and the subsequent devaluation of the Naira, adding that the country’s debt profile has continued to expand due to domestic and foreign borrowing.

He said the Naira’s depreciation from about ₦3 to one dollar in the mid-1980s to over ₦1,400 currently has significantly increased the burden of servicing external loans obtained in foreign currencies.

“When loans are taken in dollars and your currency keeps losing value, you are automatically sinking deeper into debt because repayment becomes more expensive,” he said.

The economist also blamed what he described as “ambiguous and non-transparent spending” by successive administrations, arguing that high governance costs had weakened the impact of economic reforms.

For his part, Salami said borrowing itself was not Nigeria’s major problem, but the inability of governments to deploy loans productively.

“America has more debt than Nigeria, but the difference is how they spend borrowed funds. If loans are tied to productive ventures, repayment becomes easier. But when spending is wasteful or unclear, the loans become burdensome,” he said.

He faulted Nigeria’s budgeting system, saying poor implementation and the continuous roll over of uncompleted projects had weakened fiscal discipline.

He said the 2025 budget proposal, which relies heavily on borrowing, showed that government revenues were insufficient to finance planned expenditures.

“At a point, government budgets overlap without proper completion of previous projects. If a corporate organisation performs below target, there are reviews and corrections. Government should operate with the same level of accountability,” he added.