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Nigeria Has Both Debt and Revenue Problem

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In a given fiscal year, when expenditure is greater than revenue, then there is the need for borrowing to cover up the deficit. This is needed so that equilibrium will be achieved as total revenue must be equal to total expenditure. Therefore, public debt is seen as a tool of fiscal policy used to stimulate the economy. It can also be referred to as the total amount of money borrowed to cover up deficit budget during a given fiscal year.
Those that lent the money will expect returns on their investment in the form of interest. Therefore, the borrower has to be giving interest to the lender and this is termed Debt servicing. Hence, debt service is referred to the payment of interest on loans taken by a borrower.
In Nigeria, there have been diverse opinion on which problem Nigeria has pertaining to debt- huge debt problem or revenue problem. To those in favour of huge debt problem, they explain that the loans taken by Nigeria has increased astronomically over the years (112.1% in 4 years that is from Q2 2015 to Q2 2019). And has such, becomes a burden as the future generations will be the ones to bear the burden. However, those in favour of revenue problem are of the view that Nigeria’s debt to GDP ratio is one of the lowest in the world (19.1% in 2018) when compared to other countries and that the problem Nigeria has is in low revenue which makes it seem as if the amount used in servicing debt is huge.
This research article therefore aims to provide answers to the low revenue problem by providing trend analysis of debt servicing in Nigeria, as well as compare debt services with capital expenditure over the period. It concluded by examining the budgeted revenue and actual revenue in 2018 to come about a conclusion on whether Nigeria has a debt problem or revenue problem.

Nigeria Services Domestic Debt 8 Times as much as it does for Foreign Debt

In 2018, the country used N1.87 trillion to service domestic debt while it used N292.40 billion to service foreign debt, thereby making total debt service in 2018 to be N2.16 trillion (28% more than capital expenditure of N1.68 trillion in 2018.

Based on the Data Obtained from the CBN

Over a period of 10 years, domestic debt service has grown by 771% from N214.54 billion in 2009 to N1.87 trillion in 2018 and this also shows that domestic debt service has grown by 24% annually on the basis of Compounded Annual Growth Rate (CAGR). In the 2020 budget, the sum of N1.73 trillion was allotted for the payment of interest on domestic debt and this makes payment of interest on domestic debt the second largest line item in the 2020 budget behind amount allocated for the payment of salaries.For external debt, the sum of N719.88 billion was allocated for the payment of interest on external debt and it is the fourth largest line item in the 2020 budget just behind salary, internal public debt and non-regular allowances. Over a period of 10 years, foreign or external debt service has increased by 685% and 23% on CAGR basis. This shows that on a compounded annual growth rate basis, the payment of interest on external debt has been growing by 23% annually.

Based on the Data Obtained from the CBN

Total Public Debt Service Grows by 758% in Ten Years

Over a period of 10 years, public debt services has grown from N251.79 billion in 2009 to N2.17 trillion naira in 2018, representing a growth of 758% and CAGR of approximately 24%. In the first 9 months of 2019, debt service already gulped N1.63 trillion out of the N3.42 trillion total revenue in 9 months of 2019. This shows that the debt service ratio in 9 months of 2019 is at approximately 48%, meaning that for every 1 naira earned in the first 9 months of 2019, 48 kobo was used in servicing debts.

Based on the Data Obtained from the CBN

Since 2015 however, public debt service has grown by 103.8% from N1.06 trillion in 2015 to N2.16 trillion in 2018 and from the chart above, it is during this 4 years period that debt service increases in an increasing rate compared to the years prior to 2015.

Nigeria has Been Paying More for Debt Servicing than Capital Expenditure Since 2014

It is interesting to know that from 2014, capital expenditure has been below actual amount used to service debt and the trend still continues up till 2020 as budgeted debt service amount is greater than the budgeted capital expenditure. Even though capital expenditure is highest in 2018 (N1.68 trillion) among the 10 years under review, this amount was less than the amount spent on debt servicing (N2.16 trillion) in 2018. It shows the government has been paying more interest on loans than it is in improving the level of infrastructure in the country since 2014.

Based on the Data Obtained from the CBN

While capital expenditure has grown annually by 3.85% on a CAGR basis, public debt service has grown by 24% annually on a CAGR basis. When compared with 2009, capital expenditure in 2018 was only 45.9% greater than the capital expenditure in 2009 while public debt service has grown by a whopping 758% during the same period under review.


When expenditure is growing more than revenue, then there are two solutions: reduce expenditure or increase revenue. However, when any of the two solutions seems not to be forthcoming, you borrow to cover for the expenditure and this comes at a cost- interest which must be paid. The case of Nigeria however has been such that as revenue increases at a decreasing rate (and in some instances, reduces), expenditure continues to increase. However, of the two components of expenditure, recurrent expenditure increases more than capital expenditure. Prior to 2017 and 2018, the last time actual capital expenditure was in trillion naira was in 2013 at N1.11 trillion while it reduces to N783 billion, N818 billion and N653 billion in 2014, 2015 and 2016 respectively.

The foregoing therefore brings us to the conclusion that it is either the government borrows to cover up for recurrent expenditure or capital expenditure is yet to be yielding results. But then, it seems the odd is in favour of borrowing more for recurrent expenditure because in the last few years, actual capital expenditure has been less than the budgeted capital expenditure. For example, in 2018, N2.87 was budgeted for capital expenditure but actual capital expenditure was N1.68 trillion, thereby leading to a shortfall of N1.19 trillion. For non-debt recurrent expenditure in 2018, budgeted amount was the same as the actual amount at N3.51 trillion (when total public debt charges of N2.16 trillion is subtracted from total recurrent expenditure of N5.67 trillion). Assuming federal revenue was spent only on non-debt recurrent expenditure, with a total revenue (federation account) of 3.18 trillion which is 9.4% less than actual non-debt recurrent expenditure, it shows the country still borrowed N330 billion to fund recurrent expenditure in 2018.

Therefore, Nigeria has both a debt problem and revenue problem of which the revenue problem has a greater weight. What should be done? CUT UNNECESSARY RECURRENT EXPENDITURE AND INCREASE REVENUE.
You can check our previous article where we wrote about the questionable line items in the 2020 Nigerian budget to see some of the unnecessary revenue we refer to.

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