As Africa’s largest economy, Nigeria faces a critical crossroads in its development trajectory; despite repeated efforts to spur growth and reduce poverty, the country’s mounting debt burden threatens to undermine its long-term progress.
Experts argue that with rising debt-service costs, limited revenue generation, and increasing dependence on external borrowing, Nigeria must reassess its current debt model.
Hence, they say that rethinking how and why the country borrows is not just an economic imperative, it’s essential for securing a sustainable future.
According to Chimezie Anajama and Learnmore Nyamudzanga, in their research study titled, “Rethinking Debt Sustainability and Inclusive Development in Sub-Saharan Africa: A Systematic Review”, sub-Saharan Africa, Nigeria inclusive urgently need to rethink their debt models to avoid compromising long-term development prospects.
The study explored the deepening public debt crisis in sub-Saharan Africa (SSA) and its detrimental effects on inclusive development.
The researchers systematically studied 10 years of the debt crisis in sub-Saharan Africa, from 2014 to 2024 to identify the vulnerabilities undermining debt sustainability and proposed strategic reforms to align debt management with the region’s inclusive development goals, especially for vulnerable groups like women, youth, and rural populations.
Nigeria, just like its emerging economies in SSA are as a matter of fact engulfed in disturbing debt-development trade-off, hence, the debt servicing demands are increasingly crowding out essential social spending, particularly in health, education, and poverty alleviation.
This, Anajama and Nyamudzanga said disproportionately impacts vulnerable demographics, compounding poverty and inequality.
Some of the identified vulnerabilities undermining debt sustainability in the region include climate change, Covid-19 pandemic, political instability and commodity price shocks, among others.
“Increases fiscal stress through emergency spending and lost agricultural productivity from drought and floods, and Covid-19 led to soaring debt levels due to economic shutdowns and welfare spending without commensurate revenue.
“Political instability such as military coups in some West African countries eroded investor confidence and fiscal stability,” they stated.
Besides, there are structural issues discovered to be fueling growing reliance on external debt, often denominated in foreign currencies, exposes countries such as Nigeria to currency risk.
The inability of Nigeria and its peers to execute budgets, and poor tax systems is believed to be undermining its domestic resource mobilisation.
This, the experts said, is subjecting women and youth to suffer disproportionately under austerity measures tied to debt servicing.
Speaking on the way out of this quagmire, Anajama and co, emphasized the need for debt-for-development swaps, such as redirecting debt payments toward social investment, contingent on accountability and impact metrics.
Read also: Weaker naira pushes Nigeria’s debt to nearly N150trn
Moreover, they advocated for domestic debt prioritization, the government ensuring plans to reduce exposure to foreign exchange risks and improve fiscal autonomy.
The researchers called for budget reforms which will entail enhancing credibility and gender-sensitive allocation to protect social sectors.
They maintained that the government must strengthen collection systems and ensure tax expenditures, such as VAT exemptions to benefit marginalised populations.
For the country to come out of its debt crisis and establish long-term development prospects, they say Nigeria must expand use of debt swaps with clear development goals.
Besides, the country needs to institutionalise gender-sensitive budgeting; and use tax incentives to support goods/services critical for vulnerable communities.
In addition, Nigeria and other emerging economies need to conduct regular debt sustainability assessments and public finance management reforms.
Meanwhile, the researchers warned that foreign loans worsen risks, citing that the reason many sub-Saharan African countries are in debt crises is because of foreign currencies.
“When the naira or other local currencies lose value, debt servicing becomes even more expensive, worsening the crisis,” they stated.
For a long-term development plan, they said that Nigeria’s debt mix should shift, stressing that while foreign debt can help in the short term, local borrowing supports long-term growth.
Hence, they reiterated that domestic debt is cheaper and would help Nigeria avoid currency risk.
“Renegotiate loans so that repayments fund development projects, make sure budgets support women and youth, and focus on better collection and pro-poor tax incentives, such as VAT exemptions for basic goods,” they emphasised.
