Nigeria will go full circle from borrowing to pay for petrol subsidies to using the savings from halting the costly practice to repay creditors in 2025.
Nigeria expunged the petrol subsidy bill, which gulped over $10 billion annually at its peak from the federal budget in 2023, after President Bola Tinubu’s bold move to end the decades-old practice which past presidents had avoided.
The financial gains of axing the subsidy will however be erased this year by a doubling of debt service cost from N8 trillion in the 2024 budget to N15.8 trillion ($9.86 billion).
“Subsidy is out of the budget but the $10 billion we (Nigeria) used to spend on (petrol) subsidy will now be used for debt service,” said Tilewa Adebajo, chief executive officer of Lagos-based advisory firm, CFG.
The debt service cost is not only the single biggest expenditure of the federal government in 2025, but it eclipses the combined spending on health (N2.48 trillion), education (N3.5trillion), security (N4.9 trillion) and infrastructure (N4.06 trillion) which comes to N14.95trillion.
The debt service costs also equate to 45 percent of N34.8 trillion projected government revenue in 2025.
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When debt service cost is the single largest expenditure line item in the budget, it’s a red flag, according to Adebajo.
“To get the economy back on track, the government must reduce its debt burden, restore its credit rating to investment grade and tame inflation,” Adebajo further said.
“This would reduce borrowing costs and provide stimulus for investment, sustainable growth, productivity, and employment. To accomplish this, the federal government must adjust its capital structure and balance sheet. Selling down its JV oil assets will raise $30-50 billion. That can be applied to reduce the debt burden, improve the foreign exchange regime, provide dollar supply for naira appreciation, restore credit rating and boost net reserves,”Adebajo noted.
Economists polled in a BusinessDay survey said the government must boost its revenues significantly to deal decisively with the rising debt service costs.
Samuel Sule, CEO of Lagos-based investment bank, Renaissance Capital Africa, said there is a strong need for higher revenues and less reliance on deficit financing to ensure the federal government is on a more sustainable economic path.
“Tax reforms are a medium term mode of increasing revenues and should be combined with a focus on higher oil production (a source of non-borrowed USD) and lower recurrent government spending,” Sule said.
Read also: Edun under fire at Senate over subsidy proceeds, debt servicing
Cutting down non-esssential spending
To further ease the country’s debt burden, civil society organisations have asked the National Assembly to reduce the proposed N344.85bn allocation in the 2025 budget for lawmakers and cut down non-essential spending of the executive, including N9.4 billion on travels, refreshment/meals, and foodstuff/catering materials for the presidency.
“The proposed huge spending is neither necessary nor in the public interest, especially in the face of the country’s dire economic situation and the level of proposed borrowing to fund the 2025 budget,” the Socio-Economic Rights and Accountability Project (SERAP) said in a letter addressed to the lawmakers.
Nigeria has spent more than it earned for more than a decade and that is stoking debt service costs, according to Adeola Adenikinju, president of the Nigerian Economic Society (NES).
Adenikinju stressed that, “Nigeria’s expenditure is marked by high levels of spending on subsidies and debt servicing, limiting investments in critical infrastructure.”
“Rising rigid expenditure, especially debt servicing and personnel costs, undermines the potential for capital investment, constraining fiscal space and hindering long-term economic growth,” Adenikinju further said.
When President Tinubu swept into office last year, he promised to ignite an era of economic transformation for Nigeria, targeting a bold 6 percent annual growth rate. Investors applauded as he swiftly moved to dismantle the long-standing petrol subsidy—a costly lifeline for consumers that had drained the government’s coffers for decades. By scrapping the subsidy in May 2023, Tinubu sought to free up funds and signal a new era of fiscal discipline.
But every reform comes with a price. Overnight, petrol prices tripled, sending transport costs soaring and rippling through an economy already grappling with inflation. Motorists, once shielded by the subsidy, felt the immediate pinch, their frustration amplifying the discontent simmering in households and businesses.
As inflation climbed, labour unions—vocal champions of the working class—turned up the heat, demanding relief for a population reeling from the rising cost of living. Yet, Tinubu has stood firm, resisting calls to reverse his reforms, determined to reshape Africa’s largest economy, no matter the short-term pain.
Despite the bold rhetoric, Nigeria’s growth remains stuck in neutral, hovering at a modest 3 percent—a far cry from Tinubu’s ambitious targets.
In its policy document titled, ‘Accelerated Stabilisation and Advancement Plan (ASAP),’ published last year, the finance ministry proposed that the government sell equity in its refineries by May 2026, increase the excise duty on beverages, and introduce a tax on single-use plastics and on sweetened beverages to raise funds.
