Lower Borrowing Costs Could Unlock $500bn Yearly for Nigeria, Others – UNCTAD

A new United Nations Conference on Trade and Development (UNCTAD) report has shown that developing countries, including Nigeria, could collectively save as much as $500 billion each year if they were able to borrow at the same average interest rates enjoyed by advanced economies — potentially freeing substantial resources for education, health, infrastructure and social protection.

The report, “Financing Development: External Flows of Financial Capital to Developing Countries and Their Cost”, compared the weighted-average effective interest rates paid by developed and developing nations and quantified the foregone development spending resulting from elevated financing costs.

UNCTAD found that the weighted average effective interest rate for developed countries stood at 2.2 per cent in 2024, while roughly three-quarters of developing countries — 94 nations — faced an average effective rate of about 5.5 per cent.

If those countries borrowed at the 2.2 per cent benchmark, UNCTAD estimated collective interest savings of roughly $500 billion per year.

About a quarter of developing countries already borrow at or below 2.2%.

UNCTAD said the gap in borrowing costs diverts scarce public resources away from priority sectors. “High financing costs are siphoning funds that could otherwise be invested in schools, hospitals, roads, clean energy and nutrition,” the agency said, noting economies of scale from even modest reductions in interest rates.

The report highlighted practical mechanisms and examples by which lower borrowing costs can be achieved and redirected to development needs.

One example is a debt-swap operation in Côte d’Ivoire, supported by a World Bank policy-based guarantee, which is projected to produce net present value savings of about €60 million. Some €40 million of those savings are earmarked for the construction of 30 schools serving roughly 30,000 pupils.

UNCTAD used comparable cost assumptions to show the scale of potential social investment from $500 billion in annual savings: the equivalent could finance an estimated 375,000 new schools per year (serving some 375 million students), more than 1.63 billion children on minimum dietary diversity feeding schemes, or over 1.29 million primary healthcare centres.

The agency also suggested the savings could underwrite about 65,590 km of dual-lane rural highways, 23,737 km of high-speed rail, or roughly 923,124 MW of solar generation capacity annually.

For Nigeria — classified by the UN as a developing country — the implications are particularly significant given its rising debt-servicing obligations.

Official figures show that Nigeria’s public debt stock rose sharply over recent years, driven by domestic and external borrowing to finance budget deficits and address revenue shortfalls. As of end-2025,

Nigeria’s total public debt stood at around N106 trillion (approximately $125–130 billion, depending on exchange-rate assumptions), with the domestic component accounting for the majority.

Debt-service costs have consumed an increasing share of government revenue.

In the 2025 fiscal year, the federal government reported that debt service (interest and principal payments) absorbed about 47 per cent of federally collected revenue, squeezing spending on capital projects and social programmes. Interest payments on domestic debt, where rates are typically higher than on concessional external debt, have been a major contributor to the fiscal strain.

Nigeria’s 2026 budget and subsequent financing rounds have reflected this pressure. In April 2026, the Debt Management Office (DMO) raised the coupon rate at a federal government bond sale, reflecting market-driven borrowing costs and investor demand. Analysts say higher domestic interest rates, currency risks and limited access to low-cost external financing combine to keep effective borrowing costs elevated for Nigeria compared to advanced economies.

Policy avenues and constraints

UNCTAD and other multilateral agencies have urged policy measures to narrow the cost gap. Proposed approaches include: improving access to longer-term, lower-cost external finance (including through concessional lending and guarantees), debt-restructuring or swaps that convert expensive debt into development spending, enhancing domestic revenue mobilisation to reduce risky short-term borrowing, and improving creditworthiness through stronger macroeconomic frameworks and transparency.

International reforms have also been floated to address the structural drivers of higher costs for developing borrowers. These range from expanding multilateral development banks’ balance sheets and loan guarantees to developing new market instruments that lower risk premia for sovereigns and sub-sovereigns in emerging markets.

However, UNCTAD warns that policy space is limited for many countries confronting simultaneous shocks — higher global interest rates in recent years, commodity price volatility and tightening global liquidity. For Nigeria, domestic inflation, currency depreciation pressures and reliance on short-term domestic debt create immediate constraints on reducing borrowing costs without coordinated fiscal and monetary policies.

Economists and debt analysts say lowering borrowing costs is not a simple technical fix. “Reducing the interest burden requires a mix of better macro management, credible fiscal consolidation, and expanded access to cheaper external finance,” said a senior economist who follows Nigerian sovereign debt. “Where domestic interest rates are high, shifting to concessional external borrowing can help but must be balanced against exchange-rate and rollover risks.”

The World Bank, International Monetary Fund and regional development banks have tools — guarantees, policy-based loans and balance-sheet support — that can help governments refinance expensive debt or access markets more cheaply.

But such interventions typically require reforms or conditionality to be effective and sustainable.

Implications for public services and growth

UNCTAD underlined that the potential $500 billion saving is not just an accounting exercise: redirecting even a fraction of those savings could materially accelerate progress towards development goals.

For Nigeria, freeing funds from debt service could release resources for urgently needed projects such as power-sector investments, expansion of basic healthcare and nutrition programmes, and upgrading transport infrastructure that supports trade and job creation.

The report also warned that failure to address the borrowing-cost gap could deepen inequality between developed and developing countries, as high financing costs compound other structural barriers to investment.

Looking ahead

UNCTAD calls for international and domestic actions to make finance cheaper and more predictable for developing countries. That entails both global reforms to expand concessional lending and risk-sharing mechanisms, and national policies to strengthen macroeconomic stability and debt management practices.