Nigeria’s external debt servicing obligations are set to climb to $5.2 billion in 2025, according to Fitch Ratings, reflecting mounting pressure on the country’s public finances despite recent efforts to stabilize the economy through structural reforms.
In its latest rating action commentary released on Friday, the global credit rating agency upgraded Nigeria’s long-term foreign-currency issuer default rating from ‘B-’ to ‘B’, maintaining a stable outlook. The move signals cautious optimism about the country’s economic direction, though persistent fiscal challenges loom large.
Fitch projects that external debt service will increase from $4.7 billion in 2024 to $5.2 billion in 2025, with amortisation costs accounting for $4.5 billion and a $1.1 billion Eurobond repayment due in November.
“Government external debt service is moderate but expected to rise to $5.2bn in 2025... and fall to $3.5bn in 2026,” the agency noted.
However, a recent minor delay in the payment of a Eurobond coupon due March 28, 2025, has drawn attention to ongoing difficulties in Nigeria’s public finance management.
High Debt Costs, Weak Revenue Raise Sustainability Concerns
While the external debt burden is not yet at crisis levels, Fitch warned that Nigeria faces serious structural issues, including high interest costs, poor revenue performance, and limited fiscal space. These factors collectively threaten to undermine the effectiveness of the ongoing reform agenda.
The agency forecasts that Nigeria’s general government debt will remain around 51% of GDP through 2025 and 2026. Meanwhile, government revenue is expected to remain structurally low, averaging just 13.3% of GDP over the same period. This imbalance means interest payments could consume over 30% of general government revenues, and nearly 50% of federal government revenues.
Reserves, Reforms Offer Glimmers of Hope
Despite rising debt obligations, Fitch pointed to improved external buffers, with Nigeria’s gross reserves peaking at $41 billion at the end of 2024 before dropping to $38 billion after debt service payments. On average, reserves are expected to cover five months of current external payments — a level above similarly rated peers.
The agency also highlighted significant policy reforms implemented over the past year, including the removal of fuel subsidies, liberalisation of the foreign exchange market, and tighter monetary policies. These moves have attracted increased foreign exchange inflows and enhanced macroeconomic stability.
“Net official FX inflows through the CBN and autonomous sources rose by about 89% in Q4 2024,” Fitch stated, projecting a modest depreciation of the naira in the short term but greater exchange rate stability overall.
Inflation, which remains high, is expected to average 22% in 2025, aided in part by tighter monetary conditions and improved currency management.
Budgetary Strain Worsens as Debt Costs Surge
However, the broader fiscal picture remains worrisome. Data from the Central Bank of Nigeria revealed that the country spent $5.47 billion on external debt service between January 2024 and February 2025. Domestically, debt service costs soared to N13.12 trillion in 2024, a staggering 68% rise from the N7.8 trillion recorded in 2023 — surpassing the approved budgetary allocation of N12.3 trillion.
The Federal Government has earmarked N16 trillion for debt servicing in the 2025 budget, underscoring its expectation of continued debt-related strain.
These developments coincide with mounting concerns from financial institutions, including JP Morgan, which warned that if oil prices fall significantly and persistently, Nigeria’s current account could slip into deficit territory. Such a scenario could further pressure the naira, potentially pushing the exchange rate beyond N1,700 to the dollar.
Outlook Remains Cautiously Stable
Despite these risks, Fitch maintained a stable outlook for Nigeria, citing the early gains from economic reforms and improved investor confidence. However, the agency emphasized that sustained policy implementation and stronger fiscal discipline are essential to building resilience and ensuring long-term debt sustainability.
As Nigeria grapples with a heavy debt load and weak revenue generation, the balance between reform momentum and fiscal prudence will determine the country’s path forward in the years ahead.