Opinion
Checking Nigeria’s Rising Domestic Debt
Recently, the Debt Management Office (DMO), said in an annual report on its website that Nigeria’s external debt increased by 6.2 per cent to $3.95billion while domestic debt rose to $21.8billion from $17.7billion.
In the same vein, the nation’s total debt rose by 21 per cent in 2009 to $25.8billion, which represented 13.8 per cent of the country’s Gross Domestic Product (GDP), the DMO report revealed.
It said that 85 per cent of the nation’s public borrowing was from the domestic market last year alone while 15 per cent came from abroad with the local component representing 83 per cent of total borrowing.
Since the former finance minister, and current Managing Director of the World Bank Group, Dr Ngozi Okonjo-Iweala played a major role in Nigeria’s 2995 Paris Club debt relief deal; it would appear that the country has still not learnt to apply the brakes in both external and domestic borrowing.
Worried by the development, Okonjo-Iweala recently raised an alarm in which she warned that if the Federal Government does not watch the rising domestic debt profile, Nigeria’s growth may be stagnated.
Speaking to journalists during the 2010 World Bank/International Monetary Fund annual meetings two weeks ago in Washington, DC, the United States capital, the World Bank managing director said Nigeria must at the present level of domestic debt, stop its accumulation to prevent unfavourable consequences.
Clearly, not much has changed, post-2005, when Nigeria exited the debt trap. The conditions that led to that debilitating debt problem still exist, and Nigerians must resolve to address them comprehensively and patriotically.
One of the problems remains the near absolute dependence on oil revenue, which as it were, plays tricks on our economy. In one breath, the oil money encourages our bureaucrats to accumulate whatever debt they can, believing Nigeria can pay. In another breath, the fluctuating prices of crude oil in the international market, when it dips, throws a spanner in the works of our domestic planning, thus hindering national growth.
This makes the need for the diversification of the nation’s revenue sources an imperative, especially the development of the nation’s agricultural potentials, the manufacturing sector and exploitation of her mineral resources, with which, she is abundantly endowed.
The endemic corruption in the political class is another factor in the nation’s penchant for debt accumulation.
Since very few people in the corridors of power are there to serve, the majority, who are there to enrich themselves and their families, even to succeeding generations, unabashedly corner the commonwealth, thereby stunting national development and compounding the nation’s debt problems.
When our lawmakers at all levels corner the lion share of recurrent budgetary allocation, contracts are inflated, paid for up-front, and abandoned while capturing political power becomes the easiest way to wealth, then the nation’s finances must expectedly be in crisis.
In addition, the docility of the populace with regard to making public officials accountable is another factor in the management of the nation’s finances. Conditioned by the pervasive corruption in the land, the attitude of the average Nigerian to the corrupt and acquisitive tendencies of public office holders and politicians is ‘it is their turn, let them enjoy their loot’.
This must not be so. Intellectuals and civil society organizations, have a role to play here in collaborating with the media to raise critical questions on accountability by public office holders.
Perhaps, the most important factor in the debt management issue is the enormous cost of running the current democratic government. Obviously, more money is expended on recurrent expenditure than on capital projects.
Indeed, we have on hand a national crisis of the cost of governance, which should make government to reappraise its expenditure pattern so that it does not go borrowing to sustain profligate lifestyles of public office holders.
There is the need to sustain the economic fundamentals that would continue to make the Nigerian economy grow. There is the need for a fiscally prudent approach to the management of the nation’s resources.
Presently, a lot of spending is going on, and the nation’s fiscal deficit has risen from three per cent to six per cent of the GDP.
As Okonjo-Iweala warned, if accumulation is domestic debt is not stopped, private sector investment would be crowded out and the economy would be the worse for it.
Therefore, the minister of finance, and the governor of the Central Bank of Nigeria must be guided by Okonjo-Iweala’s warning to adopt measures to check internal borrowing and bring down the nation’s fiscal deficit.
The role of anti-graft agencies, including the Independent Corrupt Practices Commission, and the Economic and Financial Crimes Commission, remain relevant in checking the diversion and stealing of the nation’s fund, and bring public officers and others who defraud government and compound its financial problems to justice.
Above all, government is required to show the will to conduct business within the ambit of due process, and best practices while showing zero tolerance for those who, by their acquisitive tendencies, want to maroon the nation in economic stagnation and debt.
From all indications, Nigeria possesses enough human and material resources to become a true economic powerhouse in Africa. According to the National Population Commission (NPC, 2023), the country’s population has grown steadily within the last decade, presently standing at about 220 million people—mostly young, vibrant, and innovative. Nigeria also remains the sixth-largest oil producer in the world, with enormous reserves of gas, fertile agricultural land, and human capital.
Yet, despite this enormous potential, the country continues to grapple with underdevelopment, poverty, unemployment, and insecurity. Recent data from the National Bureau of Statistics (NBS, 2023) show that about 129 million Nigerians currently live below the poverty line. Most families can no longer afford basic necessities, even as the government continues to project a rosy economic picture.
The Subsidy Question
The removal of fuel subsidy in 2023 by President Bola Ahmed Tinubu has been one of the most controversial policy decisions in Nigeria’s recent history. According to the president, subsidy removal was designed to reduce fiscal burden, unify the foreign exchange rate, attract investment, curb inflation, and discourage excessive government borrowing.
While these objectives are theoretically sound, the reality for ordinary Nigerians has been severe hardship. Fuel prices more than tripled, transportation costs surged, and food inflation—already high—rose above 30% (NBS, 2023). The World Bank (2023) estimates that an additional 7.1 million Nigerians were pushed into poverty after subsidy removal.
A Critical Economic View
As an economist, I argue that the problem was not subsidy removal itself—which was inevitable—but the timing, sequencing, and structural gaps in Nigeria’s implementation.
- Structural Miscalculation
Nigeria’s four state-owned refineries remain nonfunctional. By removing subsidies without local refining capacity, the government exposed the economy to import-price pass-through effects—where global oil price shocks translate directly into domestic inflation. This was not just a timing issue but a fundamental policy miscalculation.
- Neglect of Social Safety Nets
Countries like Indonesia (2005) and Ghana (2005) removed subsidies successfully only after introducing cash transfers, transport vouchers, and food subsidies for the poor (World Bank, 2005). Nigeria, however, implemented removal abruptly, shifting the fiscal burden directly onto households without protection.
- Failure to Secure Food and Energy Alternatives
Fuel subsidy removal amplified existing weaknesses in agriculture and energy. Instead of sequencing reforms, government left Nigerians without refinery capacity, renewable energy alternatives, or mechanized agricultural productivity—all of which could have cushioned the shock.
Political and Public Concerns
Prominent leaders have echoed these concerns. Mr. Peter Obi, the Labour Party’s 2023 presidential candidate, described the subsidy removal as “good but wrongly timed.” Atiku Abubakar of the People’s Democratic Party also faulted the government’s hasty approach. Human rights activists like Obodoekwe Stive stressed that refineries should have been made functional first, to reduce the suffering of citizens.
This is not just political rhetoric—it reflects a widespread economic reality. When inflation climbs above 30%, when purchasing power collapses, and when households cannot meet basic needs, the promise of reform becomes overshadowed by social pain.
Broader Implications
The consequences of this policy are multidimensional:
- Inflationary Pressures – Food inflation above 30% has made nutrition unaffordable for many households.
- Rising Poverty – 7.1 million Nigerians have been newly pushed into poverty (World Bank, 2023).
- Middle-Class Erosion – Rising transport, rent, and healthcare costs are squeezing household incomes.
- Debt Concerns – Despite promises, government borrowing has continued, raising sustainability questions.
- Public Distrust – When government promises savings but citizens feel only pain, trust in leadership erodes.
In effect, subsidy removal without structural readiness has widened inequality and eroded social stability.
Missed Opportunities
Nigeria’s leaders had the chance to approach subsidy removal differently:
- Refinery Rehabilitation – Ensuring local refining to reduce exposure to global oil price shocks.
- Renewable Energy Investment – Diversifying energy through solar, hydro, and wind to reduce reliance on imported petroleum.
- Agricultural Productivity – Mechanization, irrigation, and smallholder financing could have boosted food supply and stabilized prices.
- Social Safety Nets – Conditional cash transfers, food vouchers, and transport subsidies could have protected the most vulnerable.
Instead, reform came abruptly, leaving citizens to absorb all the pain while waiting for theoretical long-term benefits.
Conclusion: Reform With a Human Face
Fuel subsidy removal was inevitable, but Nigeria’s approach has worsened hardship for millions. True reform must go beyond fiscal savings to protect citizens.
Economic policy is not judged only by its efficiency but by its humanity. A well-sequenced reform could have balanced fiscal responsibility with equity, ensuring that ordinary Nigerians were not crushed under the weight of sudden change.
Nigeria has the resources, population, and resilience to lead Africa’s economy. But leadership requires foresight. It requires policies that are inclusive, humane, and strategically sequenced.
Reform without equity is displacement of poverty, not development. If Nigeria truly seeks progress, its policies must wear a human face.
References
- National Bureau of Statistics (NBS). (2023). Poverty and Inequality Report. Abuja.
- National Population Commission (NPC). (2023). Population Estimates. Abuja.
- World Bank. (2023). Nigeria Development Update. Washington, DC.
- World Bank. (2005). Fuel Subsidy Reforms: Lessons from Indonesia and Ghana. Washington, DC.
- OPEC. (2023). Annual Statistical Bulletin. Vienna.
By: Amarachi Amaugo
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