Nigeria's fiscal consolidation efforts are facing a precarious future, with experts warning that the impending 2026–2027 election cycle could lead to a substantial increase in government spending. This surge poses a significant risk to recent gains in debt management.
According to the latest Coronation Economic Note on the Q4 2025 Debt Report, Nigeria's total public debt has climbed to a record N159.28tn. While the debt-to-GDP ratio may appear manageable, the report highlights a critical paradox regarding the nation's actual capacity to service its obligations.
The report states, “Nigeria’s fiscal consolidation story is in reality still aspirational, as it is fragile in execution,” identifying any pre-election spending increase as a major risk variable for the 2026–2027 period.
A particularly alarming finding is the debt-service-to-revenue ratio, which reached an estimated 113% in early 2025. This indicates that the Federal Government is spending more on interest and debt repayments than it generates in total revenue, suggesting a reliance on rolling over obligations rather than servicing them from cash flow.
Despite a N109tn expansion in debt over the past three years, the government appears to be managing its finances through continuous borrowing to cover previous loans. The International Monetary Fund forecasts Nigeria’s debt-to-GDP ratio to decrease to 32.3% by 2026, which is below the 55% distress threshold. However, Coronation analysts argue that this ratio is incomplete, as Nigeria's revenue base is structurally undersized compared to its African peers.
“Nigeria’s revenue base, not the size of its economy, is the binding constraint on debt sustainability. At about 9–10 per cent of GDP, Nigeria’s tax-to-GDP ratio sits far below South Africa (24 per cent), Kenya (16 per cent), and Ghana (13 per cent),” the analysts noted.
With the National Assembly recently approving a new $6bn external borrowing package, the reliance on debt is set to continue. Experts emphasize that aggressive revenue mobilization, rather than further borrowing, is essential to escape this cycle.
The report concludes by advocating for structural reforms, including strict enforcement of the Fiscal Responsibility Act. This would ensure that borrowing is directed towards capital investments rather than operational expenses. Without these measures, the anticipated spending spike during the election year could push Nigeria's finances to a critical point.
