In August 2025, Nigeria’s external debt servicing costs increased dramatically, indicating that even while foreign exchange availability and reserves have improved, the government’s finances are still under rising strain.
External debt service payments increased by 68 percent month-on-month (m/m) to $302.3 million from $179.9 million in July, according to the Central Bank of Nigeria’s (CBN) most recent data.
As the Federal Government continues to reconcile expanding debt commitments with little revenue expansion, this represents one of the sharpest monthly increases in recent years and stands in contrast to the 25 percent m/m growth recorded in the previous month.
On a year-over-year (y/y) basis, however, the rise was only 8%, indicating some relative stability when compared to 2024. However, as interest payments on recently contracted loans increase and new disbursements from bilateral and multilateral partners mature, economists caution that the pattern may get worse in the months ahead.
Outflows of FX are dominated by debt servicing.
Payments for external debt services were the largest component of international payments in August, accounting for almost 63% of Nigeria’s total foreign exchange outflows. This demonstrates how the nation’s foreign exchange commitments are becoming to be dominated by servicing its external debt, possibly displacing other important foreign payments including import bills and external obligations of government agencies.
In total, Nigeria spent roughly $2.9 billion on servicing its external debt between January and August 2025, compared to $3.1 billion in 2024. Analysts claim that although the modest year-to-date decline suggests some respite, it really reflects more on the timing of payments and reorganized commitments than any significant decrease in debt levels.
As of mid-2025, Nigeria’s overall public debt stock, which includes both external and domestic commitments, was around N121 trillion, or $90 billion, according to CBN data. This was after new borrowings were made to finance infrastructure projects and close budget shortfalls. The servicing of debts denominated in foreign currencies, primarily the U.S. dollar, puts a constant strain on fiscal stability. Approximately 38% of this is external debt.
Domestic borrowing continues to be the norm.
The Federal Government has remained mostly dependent on the domestic debt market to cover its budget deficit, even with the notable increase in payments on its external debt. The preferred funding source continues to be domestic instruments like FGN bonds, Sukuk, and government bills due to high global interest rates and cautious investor appetite for emerging-market Eurobonds.
Higher yields that raise local interest rates and prevent the private sector from obtaining credit are among the hazards associated with domestic borrowing, though. Although external debt services increased in August, United Capital Research analysts point out that the “relative stability of the exchange rate compared with 2024 has helped ease the dollar-denominated burden.”
In 2024, the government was forced to allocate a greater portion of its revenue to foreign exchange liabilities due to the severe devaluation of the naira, which increased the expense of servicing dollar debts. Despite an increase in nominal payments, this year’s improved local currency performance and the slow resumption of foreign exchange inflows have given some breathing room.
Despite outflows, reserves increase
Ironically, despite mounting external debt commitments, Nigeria’s external reserves have kept increasing. By the end of September 2025, the reserves position had grown from $41.3 billion in August to $42.4 billion, a $1.1 billion monthly increase, according to the CBN.
As of now, reserves have increased by about $1.5 billion, indicating a steady improvement in the external liquidity profile of the nation.
Improved foreign exchange revenues from crude oil exports, robust remittances from the diaspora, and fresh foreign capital inflows—particularly portfolio investments in the debt and equities markets after policy reforms that regained investor confidence—are credited by economists with this resilience.
Nigeria’s average daily production of crude oil has stayed over 1.6 million barrels, the highest level in two years, thanks to improved pipeline security and decreased theft. Remittance inflows, which have historically been a significant non-oil source of foreign exchange, have significantly increased as the state of the world economy improves, contributing an estimated $22 billion to inflows each year.
Together, these have resulted in a slow replenishment of reserves, strengthening the CBN’s ability to stabilize the naira and fulfill maturing external commitments without exhausting the buffer.
More Naira, Less Pressure on Debt
The recent increase in the value of the naira has also helped to reduce the strain from external debt. An rise in supply from the CBN and autonomous sources has improved FX liquidity in the official window, which has caused the parallel-market premium to narrow.
In the official market, the naira was trading at about N1,150/$ as of late September, up more than 20 percent from its mid-year price of about N1,450/$. According to experts, this appreciation lessens the local currency value of external debt service payments and lessens the fiscal burden.
The ongoing currency appreciation and consistent reserve accumulation, according to a report by CardinalStone Research, “could limit Nigeria’s external debt exposure in the near term and improve confidence in the government’s fiscal management.”
However, the company issued a warning that stability in oil production, reducing speculative demand, and preserving FX supplies would be necessary for long-term development.
Future Borrowing Will Increase
Financial analysts anticipate that foreign debt servicing will increase even more in the fourth quarter of 2025 as payments from freshly authorized multilateral loans start to settle. Nigeria has obtained a number of concessional facilities for energy transition, infrastructure, and budget support from the World Bank, African Development Bank, and Islamic Development Bank.
The total amount of debt-service obligations may increase even though these loans usually have lower interest rates. According to fiscal analysts, the rising debt-service ratio could reduce fiscal flexibility if revenue growth is not substantial, especially non-oil revenue.
Over 70% of Nigeria’s total revenue is currently used for debt service, according to the Debt Management Office (DMO), a ratio that is generally regarded as unsustainable.
To lessen its need on borrowing, Nigeria has been recommended by the World Bank and IMF to broaden its revenue base and expedite fiscal reforms.
Experts Demand Fiscal Restraint
The increase in debt service payments “reflects the structural weakness in Nigeria’s fiscal system,” according to Dr. Johnson Chukwu, an economist based in Lagos, who commented on the data.
The fundamental issue is that, despite an increase in external reserves, we are still borrowing more money than we are making. “The enhanced reserves provide respite, but they do not resolve the debt issue,” he stated.
By increasing tax collection, streamlining subsidies, and making sure borrowed money is used for initiatives with quantifiable returns, he continued, the government must prioritize debt sustainability.
Similarly, the government should improve its medium-term debt strategy, according to Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE).
“We should focus on domestic sources, decrease commercial borrowing, and increase domestic revenue through reforms in mining, VAT, and customs,” he suggested.
Tinubu Wants to Borrow $2.3 Billion to Cover the Budget Shortfall and Other Issues
In a formal letter to the House of Representatives, President Bola Tinubu is requesting legislative authority to raise a total of $2.347 billion in external loans and to issue a $500 million standalone Sovereign Sukuk on the global market.
During Tuesday’s plenary, Speaker Tajudeen Abbas read a letter from the president asking for permission for the Federal Government to borrow an additional N1.843 trillion, or roughly $1.229 billion, at the 2025 budget exchange rate of $1/N1,500.
Tinubu clarified that the monies are meant to refinance an existing $1.118 billion Eurobond that is maturing later this year and to partially pay the 2025 budget shortfall.
The president stated that the proposed borrowing will be financed by one or a combination of instruments in the International Capital Market (ICM), such as direct loans from international financial institutions, bridge financing from bookrunners, loan syndications, and Eurobond issuance.
The 2025 Appropriations Act authorized N9.27 trillion in new borrowing to cover the budget deficit, of which N1.843 trillion, or roughly $1.229 billion, will come from outside sources, Tinubu added.
The $1.118 billion Eurobond issued by Nigeria in November 2018 with a 7.625% yield and with a seven-year term is scheduled to mature on November 21, 2025, he said. “The government intends to refinance the bond using one or more of the listed funding options in order to prevent a possible default,” he said.
The letter claimed that this is a common practice in international debt markets. “Therefore, the House resolution is necessary to authorize the Federal Government to refinance the maturing Eurobond appropriately.”
Nigeria plans to raise a total of $2.347 billion when the increased borrowing requirement is taken into account. As a frequent issuer of Eurobonds, Tinubu expressed confidence that Nigeria can successfully raise the necessary funds, contingent on market conditions.
“The terms and conditions of the borrowing will be decided at the time of issuance and guided by dominant market dynamics,” he continued.
He stated that the Debt Management Office (DMO) and the Federal Ministry of Finance would collaborate closely with transaction consultants to obtain the best conditions for the nation.
In addition to the external borrowing strategy, President Tinubu requested that the House authorize the issuance of a standalone debut Sovereign Sukuk, with or without a credit guarantee, up to $500 million in the international market.
In the domestic capital market, the president emphasized Nigeria’s prior achievements with Sukuk bonds. To fund important road infrastructure projects throughout the nation, the DMO issued approximately N1.392 trillion in Sukuk between September 2017 and May 2025. He maintained that diversifying the nation’s investor base, deepening the Federal Government’s securities market, and assisting in bridging Nigeria’s infrastructure funding shortage would all be achieved by entering the international Islamic finance market.
As a member of the Islamic Development Bank (IsDB) Group, Tinubu clarified that the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) may guarantee the proposed Sukuk issuance.
The request must be approved, the president emphasized, in order to support Nigeria’s economic plans, refinance current debt, and open up new funding sources to speed up infrastructure development.
FG Announces $100 Million Carbon Project to Advance the Green Growth Agenda
According to the Federal Ministry of Finance, the $100 million Orteva Carbon Project is a significant initiative that will unlock climate finance, create carbon credits, and hasten the nation’s transition to a sustainable economy, all of which are part of the Federal Government’s green growth agenda.
The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, emphasized the historic initiative during strategic talks with an Orteva group in Abuja, which was organized in collaboration with the Delta State government and Eighth Versa.
In a statement issued by Mohammed Manga, Director of Information and Public Relations, Edun emphasized the project’s compatibility with President Bola Ahmed Tinubu’s goal of sustainable economic transformation and green growth, calling it a timely intervention.
Nigeria’s Energy Transition Plan includes the program, which intends to create jobs for Nigerians, attract foreign exchange, and diversify government revenue sources beyond oil.
The Orteva Carbon Project, which includes mangrove conservation and biochar production, is expected to produce between $350 million and $2.8 billion in carbon credit revenue, making Nigeria a major hub for legitimate carbon trading in Africa.
According to Minister Edun, the administration is dedicated to creating a clear framework for a carbon market with strong governance and price mechanisms.
Emphasizing prospects for the private sector, he pointed out that the project provides ways to fund ecologically friendly projects that yield long-term financial gains.
