Syntheda

Nigeria's debt servicing obligations consumed N10.81 trillion in the first nine months of 2025, underscoring the severe fiscal pressures confronting Africa's largest economy as it struggles to balance debt repayments with development spending.

The Debt Management Office (DMO) released figures showing the substantial expenditure between January and September 2025, a period during which debt servicing continued to claim a significant portion of government revenue. The scale of these payments highlights the persistent challenge facing Nigerian policymakers who must allocate limited resources between meeting external and domestic debt obligations whilst funding critical infrastructure and social programmes.

Revenue Enhancement Strategy

Against this backdrop of mounting debt costs, President Bola Tinubu issued an executive order last week designed to increase revenue distribution to federal, state, and local governments. Dr. Mohammed Shehu, Chairman of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), confirmed that the order would result in "more money for Federal, States and Local Governments."

The executive order represents the administration's latest attempt to address Nigeria's revenue generation challenges, which have been exacerbated by oil production disruptions, crude theft, and the removal of fuel subsidies. Whilst specific details of the order's mechanisms were not disclosed in the RMAFC statement, the move signals recognition at the highest levels of government that Nigeria's fiscal architecture requires structural adjustment to meet both debt obligations and development needs.

Fiscal Sustainability Concerns

The N10.81 trillion debt servicing figure raises questions about fiscal sustainability, particularly as Nigeria's debt-to-GDP ratio has climbed steadily in recent years. The country's total public debt stock stood at approximately N121.67 trillion as of September 2024, according to previous DMO releases, with both external and domestic components contributing to the burden.

Nigeria's debt servicing costs have increasingly crowded out spending on health, education, and infrastructure—sectors critical to economic diversification and long-term growth. The situation has been compounded by naira depreciation, which inflates the local currency cost of servicing foreign-denominated debt, and rising interest rates in domestic markets.

Revenue Mobilisation Imperatives

The timing of Tinubu's executive order reflects the urgency of improving revenue collection across all tiers of government. Nigeria's tax-to-GDP ratio remains among the lowest globally at approximately 10 percent, well below the African average and significantly beneath levels in comparable emerging economies.

The RMAFC, which oversees revenue allocation formulas amongst federal, state, and local governments, has advocated for enhanced revenue mobilisation strategies to reduce dependence on oil receipts. Non-oil revenue sources, including value-added tax, company income tax, and customs duties, have shown growth potential but require improved collection mechanisms and reduced leakages.

State and local governments, which depend heavily on monthly allocations from the Federation Account, face particular pressure to develop independent revenue streams. Many states struggle to meet salary obligations and basic service delivery requirements, making the promise of increased revenue distribution through the executive order politically significant ahead of the 2027 electoral cycle.

Economic Reform Context

The executive order forms part of broader economic reforms initiated by the Tinubu administration since taking office in May 2023. These have included the removal of petrol subsidies, unification of exchange rates, and efforts to streamline government expenditure. Whilst these measures have attracted support from international financial institutions, they have also triggered inflation and increased living costs for ordinary Nigerians.

The challenge for policymakers lies in balancing fiscal consolidation—necessary to restore debt sustainability—with the need to maintain public services and social safety nets. The N10.81 trillion spent on debt servicing in just nine months demonstrates the scale of resources diverted from productive investment, even as the government seeks to generate additional revenue through policy interventions.

As Nigeria approaches the final quarter of its fiscal year, attention will focus on whether the executive order delivers the promised revenue increases and whether debt servicing costs can be contained without compromising the country's creditworthiness in international markets.