Fund says election-year spending pressures may increase borrowing needs even as reforms improve economic resilience

Nigeria’s public external debt could rise to $72.6 billion by 2027 as election-related spending pressures, weak revenue mobilisation and growing financing needs increase government borrowing, the International Monetary Fund (IMF) has warned, even as declining global oil prices threaten a key source of public revenue.

In its latest Article IV Consultation Report on Nigeria, the IMF projected that the country’s public external debt would increase from $51.9 billion in 2025 to $66.5 billion in 2026 before reaching $72.6 billion in 2027, representing a nearly 40% increase within two years.

The projection comes as global crude oil prices face renewed downward pressure following signs of possible diplomatic progress between Iran and the United States, a development that has eased concerns over supply disruptions in the Middle East and triggered a broad sell-off in energy markets.

Brent crude fell more than 3% during Tuesday’s trading session, while U.S. benchmark West Texas Intermediate declined nearly 4%, as investors reduced geopolitical risk premiums previously built into oil prices.

For Nigeria, Africa’s largest oil producer, lower crude prices present both opportunities and risks.

While cheaper oil could help moderate global inflationary pressures and reduce fuel costs, prolonged weakness in crude markets may undermine government revenues at a time when public borrowing requirements are expected to increase.

Nigeria Debt Projected to Rise Ahead of 2027 Elections

According to IMF projections, Nigeria’s public external debt stock could increase by approximately $20.7 billion between 2025 and 2027.

The Fund noted that spending pressures associated with poverty reduction, food security interventions and preparations ahead of the country’s next presidential election could widen fiscal deficits.

“Spending pressures from elevated poverty and food insecurity, including in the run-up to the elections, could widen fiscal deficits and increase financing needs,” the IMF said.

The report also projected that total external debt, including both public and private sector obligations, would increase from $109.3 billion in 2025 to $132 billion by 2027.

As a proportion of exports of goods and services, public external debt is expected to rise from 82.9% in 2025 to 104.3% by 2027, reflecting growing pressure on the country’s external accounts.

How Nigeria’s Debt Has Changed Over Time

The IMF’s projection highlights the rapid expansion of Nigeria’s external debt over the past decade as successive governments relied on borrowing to finance budget deficits and infrastructure development.

Public external debt stood at approximately $10.7 billion in 2015 before rising steadily to around $33 billion in 2020 amid the economic impact of the COVID-19 pandemic and lower oil revenues. By 2023, the figure had increased to roughly $43 billion before reaching nearly $52 billion in 2025, according to official debt data.

If the IMF’s forecast materialises, Nigeria’s public external debt would reach its highest level on record by 2027, reflecting growing financing needs as the government seeks to sustain economic reforms, support infrastructure investment and manage fiscal pressures.

Oil Market Shift Creates New Fiscal Risks

The IMF’s warning comes as oil markets react to reports suggesting that Washington and Tehran may be moving closer to a diplomatic agreement.

Market participants have interpreted the development as reducing the likelihood of disruptions around the Strait of Hormuz, one of the world’s most important oil transit routes through which roughly one-fifth of global crude shipments pass.

Earlier geopolitical tensions in the region had helped push oil prices sharply higher, supporting export revenues for oil-producing nations including Nigeria.

However, analysts say sustained declines in crude prices could complicate fiscal planning for governments that remain dependent on hydrocarbon revenues.

The IMF noted that while higher oil prices resulting from geopolitical tensions could boost export earnings, lower prices would reduce fiscal buffers and place greater emphasis on non-oil revenue generation.

Economists Urge Fiscal Discipline

Independent economists say the sustainability of Nigeria’s debt trajectory will depend less on the absolute size of borrowing and more on the country’s ability to generate revenue and achieve stronger economic growth.

According to development economist Dr. Muda Yusuf, debt becomes problematic when revenue growth fails to match rising obligations.

“The issue is not simply how much Nigeria borrows, but whether the economy generates sufficient revenue and productive investments to support repayment without creating additional fiscal stress,” he said.

Investment analysts also note that investors will closely monitor government efforts to improve tax collection, expand non-oil exports and maintain fiscal discipline as borrowing requirements increase ahead of the 2027 election cycle.

They warn that a prolonged decline in oil prices could place additional pressure on government finances if alternative revenue sources fail to expand quickly enough.

Debt Service Burden Remains Elevated

The Fund also warned that debt servicing costs would continue to absorb a substantial share of government revenues.

According to IMF estimates, interest payments consumed 53.2% of Federal Government revenue in 2025 and are projected to remain above 50% through 2027.

Interest payments on public debt are expected to increase from approximately $2 billion in 2025 to around $3 billion by 2027.

Although the IMF assessed Nigeria’s overall sovereign debt risk as “moderate”, it cautioned that weak revenue mobilisation remains one of the country’s most significant fiscal vulnerabilities.

“Nigeria continues to have one of the lowest revenue-to-GDP ratios globally,” the Fund said, urging authorities to strengthen tax administration, improve fiscal transparency and broaden revenue collection.

What Rising Debt Could Mean for Nigerians

While Nigeria’s debt-to-GDP ratio remains relatively moderate compared with many emerging economies, economists warn that rising debt levels can still have significant consequences for households if government revenues fail to keep pace with borrowing.

Higher debt servicing costs may reduce the amount of money available for infrastructure, healthcare, education and social programmes, as a larger share of public revenue is diverted toward interest payments.

Analysts also note that increased borrowing requirements could place pressure on future tax policies and public finances, particularly if oil revenues weaken or economic growth slows. In addition, excessive reliance on external borrowing can expose the economy to exchange-rate risks, making debt repayment more expensive if the naira depreciates.

For consumers, prolonged fiscal pressures could contribute to inflationary risks if government deficits expand, potentially affecting food prices, transportation costs and household purchasing power.

Concerns Over Proposed $5bn Financing Arrangement

The IMF also expressed reservations about Nigeria’s proposed $5 billion Total Return Swap financing arrangement with First Abu Dhabi Bank.

According to the Fund, such structures can be less transparent than conventional borrowing instruments and may expose governments to additional risks if underlying collateral loses value or exchange-rate conditions deteriorate.

Christian Ebeke, the IMF Resident Representative for Nigeria, said the transaction could generate vulnerabilities through potential margin calls and other financial obligations.

“We think Nigeria has market access and can issue Eurobonds or pursue other funding sources, including concessional financing,” Ebeke said during a virtual briefing.

The comments come after the Nigerian Senate approved plans allowing the Federal Government to raise up to $5 billion through the arrangement.

Reforms Improve Resilience

Despite concerns over debt accumulation, the IMF acknowledged that recent economic reforms have improved Nigeria’s macroeconomic stability.

The Fund said reforms implemented over the past three years have strengthened resilience, improved foreign exchange market functioning and enhanced the economy’s ability to absorb external shocks.

IMF Mission Chief Axel Schimmelpfennig said Nigeria had demonstrated greater resilience amid volatility stemming from developments in the Middle East.

“One of the key messages from the report is that strong reforms over the past three years have improved macroeconomic outcomes and strengthened resilience,” he said.

The IMF projects Nigeria’s economy will expand by 4.1% in 2026 and 4.3% in 2027, although both forecasts were revised lower because of uncertainties linked to global geopolitical developments.

Outlook

The interaction between oil prices, government revenues and borrowing requirements is likely to remain a defining theme for Nigeria’s economic outlook over the next two years.

If oil prices remain subdued, authorities may face greater pressure to accelerate tax reforms, improve revenue collection and manage spending carefully as election-related demands increase.

For investors, the IMF’s latest assessment presents a mixed picture: improving macroeconomic stability and stronger growth prospects on one hand, but rising debt levels and fiscal pressures on the other.

How effectively Nigeria balances those competing realities may determine the sustainability of its economic reforms as the country moves toward the 2027 election cycle.

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