Nigeria’s Debt-to-GDP Ratio to Drop for First Time in Over a Decade — World Bank

Nigeria’s debt burden is set to ease for the first time in more than a decade, signalling improving fiscal resilience amid stronger revenues and ongoing economic reforms.

According to the latest Nigeria Development Update by the World Bank, the country’s debt-to-GDP ratio is projected to decline from 42.5 percent in 2024 to 39.8 percent in 2025. Debt service-to-revenue has also dropped significantly to levels not seen in years.

The report, titled Nigeria’s Tomorrow Must Start Today: The Case for Early Childhood Development, attributes the improvement to stronger revenue mobilisation, exchange rate gains and a more resilient growth outlook.

“Gross revenues have increased and are expected to benefit from higher oil prices linked to the Middle East conflict,” the report noted. Federation Account Allocation Committee (FAAC) revenues rose from N17.1 trillion (7.9 percent of GDP) in 2024 to N37.4 trillion (9.5 percent of GDP) last year, driven largely by improved tax administration, although deductions remain substantial.

Spending pressures persist

Despite the improvement in revenues, fiscal pressures remain elevated as government spending continues to rise.

Expenditure growth in 2025 has been driven by higher interest payments, an expanded wage bill following the minimum wage adjustment, and increased capital spending by subnational governments. These pressures are expected to keep the fiscal position broadly neutral, even as revenues improve.

The World Bank projects Nigeria’s economic growth will remain steady at around 4.2 percent between 2026 and 2028, supported by continued reform momentum.

External position strengthens

Nigeria’s external position has improved markedly, bolstering resilience against tighter global financial conditions.

The report highlights rising foreign reserves, a more unified foreign exchange market and reduced volatility since 2024, supported by a current account surplus and increased portfolio inflows. The external balance is expected to remain strong in 2026, underpinned by oil exports and remittances.

High-frequency indicators for the first quarter of 2026 also point to sustained economic activity, with limited immediate impact from the Middle East conflict on domestic business conditions.

Inflation risks remain elevated

Although inflation eased last year, it remains high at around 15 percent, underscoring persistent cost pressures in the economy.

The World Bank noted that disinflation has been supported by tight monetary policy, improved exchange rate stability and stronger agricultural output. However, inflation remains elevated relative to peer economies such as Ghana, Kenya and South Africa.

Rising global oil prices—driven by the ongoing escalating tensions involving the United States, Israel and Iran—are expected to add fresh inflationary pressure. A more than 50 percent surge in petrol prices since the onset of the conflict is already feeding into higher transport and production costs.

Sectors directly linked to energy account for about 10 percent of consumer spending, but indirect effects are likely to be broader, affecting food prices and overall cost of living.

Despite macroeconomic improvements, poverty levels remain high. The poverty rate rose to 63 percent in 2025 from 58 percent in 2024 and is expected to remain elevated in the near term, highlighting the slow transmission of reforms to households.

A meaningful reduction in poverty will depend on faster, broad-based growth and sustained efforts to bring inflation under control.

Policy priorities

The World Bank recommends that Africa’s most populous nation adopt prudent fiscal measures to manage potential oil windfalls and cushion the economy against external shocks.

Key policy actions include rebuilding fiscal buffers, strengthening targeted social protection rather than relying on blanket subsidies, and anchoring inflation expectations. The report also calls for trade policy reforms, including reducing tariffs, lifting import restrictions and limiting market interventions to enhance price stability and absorb external shocks.