The Federal Government intends to dedicate a substantial portion of its budget to debt servicing from 2025 to 2027, exceeding the funds allocated for capital expenditures. This allocation is outlined in the recently approved 2025–2027 Medium-Term Expenditure Framework and Fiscal Strategy Paper, which estimates debt servicing costs at N50.39 trillion over the three years, surpassing the N48.93 trillion set aside for capital projects.
Key Metrics and Trends
Debt Servicing vs Capital Expenditure
- Total debt servicing (2025-2027): N50.39 trillion
- Total capital expenditure (2025-2027): N48.93 trillion
- Debt servicing growth: 26.7% (2025-2027)
- Capital expenditure growth: 0.18% (2025-2027)
Annual Breakdown (As % of Total Budget)
2025:
- Capital Expenditure: 34.44%
- Debt Servicing: 32.11%
2027:
- Capital Expenditure: 31.51%
- Debt Servicing: 37.20%
New Borrowing Plans
- Total planned borrowing: N31.24 trillion
- Domestic borrowing: N24.98 trillion (80%)
- Foreign borrowing: Remaining 20%
Critical Analysis
Structural Concerns
1. Inverted Priorities: The government plans to spend more on servicing existing debt than on developing new infrastructure, potentially creating a negative development spiral.
2. Growth Disparity: The stark difference between debt servicing growth (26.7%) and capital expenditure growth (0.18%) suggests a severely constrained fiscal space.
3. Infrastructure Gap: The minimal increase in capital expenditure will likely widen Nigeria's infrastructure deficit, potentially hampering economic growth and development.
Risk Factors
1. Debt Sustainability: The projected increase in debt servicing costs from N8.56 trillion in 2023 to N19.49 trillion in 2027 (127.7% increase) raises serious concerns about long-term fiscal sustainability.
2. Revenue-Expenditure Mismatch: Despite policies like subsidy removal and exchange rate unification, significant budget deficits persist, indicating structural revenue problems.
3. Domestic Market Pressure: Heavy reliance on domestic borrowing (80% of new debt) could crowd out private sector investment and impact monetary policy effectiveness.
Mitigation Strategies Proposed
1. Debt restructuring focusing on non-commercial long-term facilities
2. Extended loan tenors (10-50 years)
3. Significant moratorium periods (5-7 years)
Implications
Economic Impact
- Reduced capacity for infrastructure development
- Potential slowdown in economic growth
- Limited fiscal space for social services
Development Goals
- Risk to healthcare and education investments
- Possible delay in achieving development targets
- Increased vulnerability to external shocks
Recommendations
1. Revenue Diversification: Urgent need to expand revenue sources beyond traditional channels
2. Expenditure Optimization: Critical review of recurrent expenditure to free up resources for capital projects
3. Investment Prioritization: Focus on high-impact infrastructure projects that can generate returns and stimulate economic growth
