Nigeria’s debt burden has increased faster than its revenue capacity over the past decade, with interest payments now consuming a larger share of government income, highlighting the cost of relying on borrowing without a deeper domestic capital market.
Nigeria’s debt rose to 38 percent of gross domestic product in 2025, from 23 percent in 2015, while interest payments climbed to 24 percent of government revenue from 14 percent over the same period, according to an S&P Global Institute report on Africa’s capital markets.
According to S&P, Nigeria’s US-dollar sovereign bond issuance increased more than sevenfold between 2015 and 2026, while sovereign bond spreads narrowed by about 150 basis points.
The increased issuance has expanded Nigeria’s presence in international markets, but the country’s rising debt and interest burden shows that improved access to investors has not removed its fiscal constraints.
The report noted that African governments face higher borrowing costs partly because domestic savings pools remain shallow, inflation is volatile and investors demand higher returns to compensate for currency and sovereign risks.
Across rated African sovereigns, interest payments absorb about eight percentage points more government revenue than the global average.
In several African economies, government revenue remains below 20 percent of GDP, limiting the resources available for infrastructure and other public investment.
Nigeria’s challenge also reflects the limited capacity of domestic financial markets to provide affordable long-term funding.
Private-sector credit across Africa has a median of about 17 percent of GDP, compared with approximately 50 percent in emerging markets.
Only about a quarter of the continent’s estimated $4 trillion in financial assets is long term, while insurance penetration is below 3 percent of GDP and pension assets average about 23 percent of GDP.
These constraints limit demand for longer-dated securities and make it harder for governments and companies to secure stable financing.
The report also cautioned that borrowing in local currency does not automatically make debt cheaper. Nigeria and Egypt paid about 13 to 15 percent on domestic debt during 2021 to 2026, reflecting elevated inflation and the returns investors require.
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Although domestic borrowing can reduce exposure to exchange-rate depreciation, it can increase refinancing pressure when maturities are short and interest rates remain high.
Banks may also hold government securities to meet liquidity and reserve requirements, while pension funds and insurers face investment restrictions or limited alternatives.
S&P argued that genuine capital-market development requires more than increased government bond issuance.
It depends on a wider range of borrowers and financial instruments, longer maturities, reliable pricing benchmarks and liquid secondary markets.
The report pointed to Brazil, where the domestic corporate bond market expanded to about 70 percent of GDP in 2025 from 16 percent two decades earlier, as an example of how institutional savings and regulatory reforms can support market development.
In the case of Nigeria, expanding long-term savings and creating more financing channels for businesses could help reduce the concentration of domestic capital in government securities and improve access to productive investment.
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