Nigeria, Africa’s largest economy and most populous nation, is wrestling with a growing debt crisis that threatens its fiscal stability. While the country’s total public debt remains within manageable limits relative to GDP, the structure—split between domestic and external obligations—reveals deep regional disparities and economic vulnerabilities.
“Nigeria’s external debt is concentrated in its most economically active zones, with the South-West accounting for 34 percent (1.7 billion) of the total.”
As of December 2024, Nigeria’s external debt stands at 4.8 billion dollars, while domestic debt has ballooned to ₦4.42 trillion (across its 36 states and Federal Capital Territory (FCT)). A closer look at the numbers exposes a stark divide: the South-West dominates external borrowing, while the South-South and South-West lead in domestic liabilities. Meanwhile, the North-West and North-East remain the least indebted zones, reflecting lower economic activity and weaker access to credit.
What do these numbers mean for Nigeria’s fiscal health, and how do they shape regional economic resilience?
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The external debt landscape: A regional breakdown
Nigeria’s external debt is concentrated in its most economically active zones, with the South-West accounting for 34 percent (1.7 billion) of the total. Lagos alone holds $1.17 billion, nearly a quarter of the nation’s foreign obligations. This is unsurprising—Lagos, Nigeria’s commercial hub, attracts infrastructure financing and private-sector-linked loans.
The North-West, despite its vast population, owes just 1 billion, with Kaduna State leading at $625.10 million, thanks to ambitious infrastructure projects under former Governor Nasir El-Rufai. The South-South, rich in oil but plagued by underdevelopment, owes $933.9 million, with Edo and Cross River accounting for much of the burden.
Key insights:
· Lagos’s dominance: The state’s debt is largely tied to transport (e.g., Lekki Port, Blue Line Rail) and energy projects. However, repayment pressures loom as the naira weakens.
· Kaduna’s high-stakes borrowing: The state’s debt-fuelled urban renewal could either boost growth or become unsustainable if revenue streams (like tax collection) underperform.
· The South-East’s low exposure: With just $454.73 million in external debt, the region’s conservative borrowing reflects its reliance on private capital (e.g., Igbo entrepreneurship) rather than government-led financing.
Domestic debt: The silent crisis
While external debt garners global attention, Nigeria’s domestic debt—largely in naira—poses a more immediate liquidity threat. The South-West leads again with ₦1.35 trillion, driven by Lagos (₦900.19 billion) and Ogun (₦211.86 billion). The South-South follows at ₦1 trillion, with Rivers (₦364.39 billion) and Delta (₦199.58 billion) as major contributors.
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Why this matters:
· Debt servicing costs: High domestic borrowing means states spend a growing share of revenue on interest payments, crowding out critical sectors like education and healthcare.
· North-south divide: The North-West has the lowest domestic debt (₦243.1 billion), partly due to weaker banking penetration and lower state revenue generation.
· Lagos’s paradox: Despite its high debt, Lagos generates enough internally generated revenue (IGR) to service obligations. Smaller states like Ekiti (₦134.59 billion external debt) lack this cushion.
Regional risks and opportunities
1. South-west: Growth engine or debt trap?
· Pros: Strong IGR (Lagos generates 35% of Nigeria’s subnational revenue) and better infrastructure ROI.
· Cons: Over-reliance on Lagos; if its economy slows, debt sustainability weakens.
2. South-south: Oil wealth, fiscal weakness
· Despite oil riches, states like Rivers and Akwa Ibom borrow heavily domestically, suggesting poor revenue management.
3. North: Low debt, low development
· The North-east and North-west owe little but also invest little. Without borrowing for infrastructure, poverty and insecurity may worsen.
4. South-east: Private sector resilience
· Low government debt but poor infrastructure. Can federal projects (e.g., Second Niger Bridge) spur growth without over-leveraging?
Read also: ‘Key to unlocking Nigeria’s vast economic potential lies in transformative not incremental reforms’
The road ahead: Solutions and pitfalls
Nigeria’s debt profile is not yet catastrophic, but warning signs flash:
· Currency risk: External debt repayment costs rise as the naira depreciates.
· Domestic debt bubble: If bond markets tighten, refinancing could become costly.
· Regional imbalances: States with weak IGR (like Bauchi) risk default without federal bailouts.
Policy recommendations:
✔ Debt transparency: Publish state-level repayment schedules and project impact assessments.
✔ IGR reforms: Broaden tax bases beyond oil (e.g., property taxes in Lagos, agricultural levies in the North).
✔ Debt swap deals: Convert some state debts into federal obligations tied to infrastructure delivery.
Conclusion: A fragile balance
Nigeria’s debt story is one of contrasts—dynamic southern states leveraging credit for growth versus northern regions trapped in low-debt, low-development stagnation. Without smarter fiscal management, the country risks either a liquidity crunch (if domestic debt balloons further) or a growth slump (if borrowing halts).
For now, the economy walks a tightrope. The next 12 months will determine whether Nigeria steps toward sustainable development or deeper into debt distress.
Data sources: Debt Management Office (DMO), Statisense, Central Bank of Nigeria (CBN).
Dr Oluyemi Adeosun is BusinessDay’s Chief Economist.
