International Monetary Fund (IMF) on Monday stated that although Nigeria’s debt remained sustainable and the country faced no high risk of distress, the federal government’s growing debt service burden was a major concern, with about half of its tax revenues being used to pay interest on borrowings.
IMF Resident Representative for Nigeria, Dr. Christian Ebeke, made the remarks during an interview on ARISE NEWS Channel.
The discussion focused on the outcome of the fund’s recently concluded Article IV Consultation on Nigeria.
Ebeke explained that although Nigeria’s debt profile compared favourablywith many other countries, the amount being spent on servicing debt was limiting the government’s ability to fund critical sectors such as health, education, security and social protection.
According to him, Nigeria’s debt-to-GDP ratio, which remains in the mid-30 per cent range, is relatively low compared to many peer countries, while the structure of the debt portfolio also provides some comfort.
Ebeke stated “Our latest assessment in the Article 4 that we just published on June 9, basically concludes that Nigeria’s debt is sustainable. And second, the risk of sovereign stress is actually moderate. So we don’t see Nigeria as a high risk in terms of a debt-distressed country.
“But Nigeria faces a very strong challenge in terms of interest to revenue ratio. So we actually estimate that in 2025 to 2028, the interest to revenue ratio, how much the federal government pays out of the tax it collects is actually about 50 per cent.”
He added, “When you have more than 50 per cent of your tax collection devoted to repaying interest on your federal government debt, it leaves you very little room to actually pay for health, education, cash transfer, including security.
“So that’s why our focus has been on ensuring that Nigeria has a very robust domestic revenue mobilisation plan that takes into account the realities of today, high inflation, high poverty, high food insecurity, but also working very, very strongly to ensure that the new tax laws are well implemented and the enforcement is strong.”
Ebeke sated, that a significant portion of Nigeria’s external debt consisted of concessional loans rather than expensive commercial borrowings, thereby reducing the country’s exposure to high financing costs.
He stated, “First is that the debt-to-GDP ratio that you just showed is still very low in the 30s. Compared to many other countries, Nigeria has a low debt-to-GDP ratio.
“Second is the composition of that debt. You have a good balance between domestic and foreign debt. Third, you also have the maturity profile. This debt is actually mostly long-term rather than very short-term. So that also helps Nigeria in terms of rollover risk and refinancing needs.”
The IMF official stressed that the real challenge lay in the country’s weak revenue position relative to its debt obligations.
He emphasised the need for stronger domestic revenue mobilisation, particularly through effective implementation of the newly enacted tax laws.
Ebeke stated, “That’s why our focus has been on ensuring that Nigeria has a very robust domestic revenue mobilisation plan that takes into account the realities of today, high inflation, high poverty, high food insecurity, but also working very strongly to ensure that the new tax laws are well implemented and the enforcement is strong.”
On the controversial $5 billion total return swap arrangement approved by Senate with First Abu Dhabi Bank of the United Arab Emirates, IMF expressed reservations, citing concerns over transparency, complexity and potential hidden costs.
Ebeke stated that while the transaction might appear attractive on the surface, the details of the agreement remained largely unknown and could expose Nigeria to significant risks under adverse economic conditions.
“Right now, the parameters of the deal are not known to many. In terms of transparency, we think that those transactions are usually opaque and complex,” he said.
Ebeke explained that one of the major concerns related to the possibility of margin calls if the value of pledged assets declined or if the naira depreciated significantly.
He stated, “We understand that there’s over-collateralisation. Nigeria had to pledge 133 per cent in terms of domestic bonds in order to meet the requirements of the deal.
“We think that with this abundant collateral that you put out there, the yield is actually very expensive because you have similar opportunities with the Eurobond where you don’t actually even need collateral and you can still have access to funds.”
According to him, countries that have historically relied on such transactions often do so because they lack access to international capital markets, a situation he said does not currently apply to Nigeria.
“We think that Nigeria retains market access. Nigeria can issue Eurobonds and Nigeria can actually have a more transparent and less opaque way of raising funds,” he stated.
IMF also reiterated its warning about worsening poverty levels in Nigeria and called on the federal government to strengthen social protection mechanisms to cushion the effects of ongoing economic reforms.
Ebeke stated that poverty levels were already elevated before the current administration’s reforms began, but acknowledged that inflation and rising food prices had worsened living conditions for many Nigerians.
“High inflation, high food inflation pushed a lot more people into poverty. The World Bank estimates that as of end-2025, the poverty rate is 63 per cent. So this is a huge concern for all of us,” he said.
He urged the government to ensure that social protection programmes, especially cash transfers, became a permanent feature of public spending.
Ebeke stated, “Our recommendations have always been balanced. On the one hand, it is important to preserve macroeconomic stability. Without it, you’re going to increase poverty even further.
“But on the other hand, equally important, you need to have a social safety net in place and fiscal policies that can actually reach out to the most vulnerable Nigerians.”
IMF maintained that while Nigeria would eventually need to raise more domestic revenue to finance development priorities, any future tax increases should be accompanied by visible improvements in public services.
Ebeke said, “As you’re contemplating raising more revenue, you need to have a very strong social contract.
“So, now if you want to tax more, you have to equally provide to the population very good services and public goods.”
Emmanuel Addeh and Nume Ekeghe
