The International Monetary Fund (IMF) has projected a sharp rise in Nigeria’s external debt stock, warning that increased spending pressures ahead of the 2027 general elections could widen fiscal deficits and accelerate borrowing needs.
In its 2026 Article IV Consultation Report on Nigeria released on Tuesday, the Fund said public external debt is expected to climb from $51.9bn in 2025 to $72.6bn by 2027—an increase of nearly 40 per cent within two years.
According to the IMF, the debt stock is projected to rise to $66.5bn in 2026 before reaching $72.6bn in 2027, reflecting continued reliance on external financing to support government operations and budget deficits.
The projection closely aligns with data from Nigeria’s Debt Management Office, which put public external debt at $51.86bn as of December 31, 2025.
Overall, the IMF estimates that Nigeria’s total external debt—including public and private sector obligations—will increase from $109.3bn in 2025 to $132bn in 2027, representing a rise of $22.7bn over the period.
Election-related spending pressures flagged
The Fund warned that fiscal risks could intensify in the build-up to the 2027 presidential election, particularly due to rising poverty levels and food insecurity.
“Spending pressures from elevated poverty and food insecurity, including in the run-up to the elections, could widen fiscal deficit and increase financing needs,” the IMF stated.
It added that such pressures could further strain public finances if not managed through tighter expenditure controls and stronger revenue mobilisation.
Debt burden rising relative to GDP and exports
The IMF noted that Nigeria’s external debt burden will remain elevated relative to economic output and export earnings.
Public external debt is projected to increase from 17.9 per cent of GDP in 2025 to 18.7 per cent in 2027. As a share of exports of goods and services, it is expected to rise from 82.9 per cent to 104.3 per cent over the same period.
Debt service indicators are also expected to deteriorate. Public external debt service as a share of exports is projected to rise from 8.1 per cent in 2025 to 8.8 per cent in 2027, after easing temporarily in 2026.
Interest payments on public debt are forecast to increase from $2bn in 2025 to $3bn by 2027.
At the federal level, debt servicing is expected to remain a major fiscal constraint, consuming more than half of government revenue. The IMF estimates that interest payments absorbed 53.2 per cent of federal government revenue in 2025 and will remain above 50 per cent through 2027.
Shift toward external financing
The report highlights an increased reliance on external borrowing to finance Nigeria’s 2026 budget deficit, including proposed instruments such as a $5bn Total Return Swap with an international bank and a potential Eurobond issuance.
However, the IMF expressed concern over the structure of the proposed swap arrangement, warning that it could introduce financial risks.
“The arrangement exposes the government to margin calls if the FX value of the naira securities drops… and could thus give rise to political constraints on monetary or exchange rate policy,” the Fund stated.
IMF Resident Representative for Nigeria, Christian Ebeke, said the proposed structure lacked transparency compared to conventional financing options.
“These types of structures carry risks. Usually, they are opaque. The terms are not always very transparent,” he said.
He added that Nigeria still has access to global capital markets and could raise funds through Eurobond issuances or concessional financing, which may offer more transparent terms.
Debt sustainability remains “moderate risk”
Despite the rising debt trajectory, the IMF maintained that Nigeria’s debt risk remains manageable, describing sovereign stress risk as “moderate.”
It noted that Nigeria’s public debt-to-GDP ratio fell to 36.1 per cent in 2025 from 39.3 per cent in 2024, supported by stronger growth, naira appreciation and improved macroeconomic stability.
However, the Fund cautioned that weak revenue generation, expenditure overruns, contingent liabilities and election-related spending could worsen the outlook if left unchecked.
Growth outlook and policy guidance
The IMF projected Nigeria’s economy to grow by 4.1 per cent in 2026 and 4.3 per cent in 2027, though it said these figures had been revised downward due to global economic shocks linked to geopolitical tensions.
Mission Chief for Nigeria, Axel Schimmelpfennig, said reforms over the past three years had improved resilience and macroeconomic stability.
He added that higher global oil prices could support export earnings but also drive inflation through increased fuel, food and fertiliser costs.
The Fund recommended a broadly neutral fiscal stance in 2026, stronger revenue mobilisation, and continued social support programmes to protect vulnerable households.
It also urged the government to maintain a restrictive monetary policy stance and sustain the flexible exchange rate regime, which it said had contributed to recent currency stability.
“The flexible exchange rate regime is serving Nigeria well,” Schimmelpfennig said, noting recent appreciation of the naira against the US dollar.
Call for fiscal discipline
The IMF urged Nigerian authorities to strengthen fiscal transparency, improve budget implementation, and avoid off-budget spending in order to contain borrowing pressures.
It also encouraged continued investment in infrastructure, electricity, security, agriculture, education and healthcare to support long-term growth while expanding targeted cash transfer programmes to cushion economic shocks.
Nigeria remains one of the countries with the lowest revenue-to-GDP ratios globally, the Fund noted, stressing the urgency of reforms to boost domestic revenue mobilisation.