Nigeria's debt service-to-revenue ratio is projected to rise to 71.7 per cent by 2030, well above the 50 per cent threshold recommended by the Debt Management Office (DMO). The projection is contained in the DMO's 2024 Debt Sustainability Analysis report released on Monday, which warned that debt servicing would consume an increasing proportion of government revenue despite an expected decline in the country's debt-to-GDP ratio.
This development comes at a time when mounting public debt is estimated to hit over N200 trillion by the end of the year. The report also revealed that domestic debt servicing in the first six months of 2026 already amounted to 61.4 per cent of the N8.61 trillion spent on domestic debt servicing in all of 2025, underscoring the continuing pressure of borrowing costs on public finances.
According to the report, the debt service-to-revenue ratio is expected to fall from 60.6 per cent in 2024 to 44.9 per percent in 2025 before rising above the recommended threshold to 51 per cent in 2026. It is projected to increase to 57.1 per cent in 2027, 57.4 per cent in 2028 and 67.3 per cent in 2029, before reaching 71.7 per cent in 2030.
Under a more adverse shock scenario, the ratio could climb to 97.3 per cent by 2030, indicating that almost all Federal Government revenue could be absorbed by debt servicing. The DMO attributed the worsening outlook to debt servicing growing faster than government revenue, highlighting the challenge of weak revenue mobilisation.
The shock scenario assumes a 30 per cent exchange rate depreciation, a two per cent decline in real Gross Domestic Product and a 2.5 per cent reduction in revenue. Interestingly, the report projects that Nigeria's public debt-to-GDP ratio will decline from 53.7 per cent in 2024 to 27.3 per cent by 2030 under the baseline scenario.
The report further noted that the Total Public Debt-to-GDP ratio is projected to decline from 39.7 per cent in 2024 to 36.9 per cent of GDP in 2025 and further to 31.3 per cent in 2027 under the Baseline Scenario, assuming improved average real GDP growth rate of 4.8 per cent supported by current economic reforms of the Government. Under the Shock Scenario, the ratios would be 38.7 per cent in 2027, higher than the ratio in the Baseline Scenario. This ratio would remain within the recommended threshold of 60 per cent in the MTDS, 2024-2027 and the 70 per cent MAC-DSA Limit throughout the DSA projection period of 2025 to 2030.
Similarly, the Debt Service-to-FGN Revenue ratio is expected to drop from 60.6 per cent in 2024 to 44.9 per cent in 2025, but will exceed the Limit of 50 per cent recommended in the 2024 DSA starting from the year 2026 to 72.6 per cent by 2030 under the Baseline Scenario. The rise in this ratio is due to the fact that the rate of growth in Debt Service is higher than the rate of growth of Revenue. This ratio is high and the fiscal space available to the Government is limited. In the Shock Scenario, shortfall in domestic revenue mobilisation would further push the ratio from 57.4 per cent in 2026 to 97.7 per cent in 2030, thus reducing fiscal space and requiring the ratio to be brought down.
However, the lower debt ratio does not necessarily translate into improved debt affordability, as government revenue remains insufficient to comfortably accommodate rising obligations. The DMO described Nigeria's debt sustainability as moderate but highly vulnerable to weak revenue mobilisation, exchange rate depreciation and global uncertainties. It also identified elevated financing, refinancing and foreign exchange risks. Nigeria's average Eurobond spread stood at 975.58 basis points between October 2 and December 31, 2024, above the 600-basis-point threshold. The agency further noted that non-residents held 49 per cent of Nigeria's public debt, exceeding the 45 per cent threshold and increasing exposure to foreign exchange risks.
To address the challenges, the DMO recommended sustained subsidy removal, a unified and flexible exchange rate regime, stronger tax collection, expansion of the tax base and improved public expenditure efficiency. It also urged the government to prioritise growth-enhancing investments, consider privatisation of public assets and rely more on concessional financing.