BY TAIBAT UMMI YAKUBU

Nigeria's external debt has climbed to $145.02 billion, marking a 6.6 per cent increase in 2025 and intensifying concerns over the country's growing financial obligations and the rising cost of servicing borrowed funds.

The latest figures are contained in the World Bank's International Debt Report 2026, released on Thursday, which provides an assessment of external borrowing and debt sustainability across low- and middle-income economies.

According to the report, Nigeria's external debt stood at $145.015 billion as of December 2025, comprising $62.4 billion in public and publicly guaranteed debt, $54.476 billion in private nonguaranteed debt and $28.139 billion in short-term obligations.

The breakdown shows that government borrowing and loans backed by public guarantees account for less than half of the country's external debt, while private sector obligations and short-term liabilities constitute a significant share.

The World Bank explained that public and publicly guaranteed debt covers foreign loans obtained by government institutions, including the federal and state governments and state-owned enterprises, as well as private sector borrowing backed by government guarantees.

Private nonguaranteed debt, meanwhile, refers to long-term external loans obtained by private entities without government backing.

Beyond the growing debt stock, the report raised concerns over the increasing pressure of repayment obligations on Nigeria's economy, particularly as some debt-service indicators worsened during the year.

Nigeria's external debt-to-exports ratio stood at 212 per cent in 2025, while its external debt-to-gross national income (GNI) ratio was recorded at 51 per cent.

The country's debt-service-to-exports ratio reached 19 per cent, while debt servicing as a share of GNI stood at five per cent.

Although the debt-to-exports and debt-to-GNI ratios declined by 4.3 per cent and 6.6 per cent respectively compared with their 2024 levels, the cost of servicing external obligations moved in the opposite direction.

The debt-service-to-exports ratio increased by 9.6 per cent, while debt servicing relative to GNI rose by 6.9 per cent, suggesting that Nigeria is facing greater pressure in meeting its foreign debt obligations despite some improvement in its debt ratios.

The development reflects a wider challenge confronting developing economies, which are increasingly spending larger portions of their resources on debt repayments rather than essential development projects.

The World Bank disclosed that debt-service payments by low- and middle-income countries reached a record $1.4 trillion in 2025, extending a five-year trend of rising repayment costs.

Payments increased by 1.9 per cent during the year, largely driven by obligations to private creditors, particularly international bondholders.

Between 2022 and 2025, the countries covered by the report paid approximately $436.1 billion more in debt servicing than they received in new financing.

However, the trend showed some improvement in 2025, when long-term debt flows recorded a net inflow of $45.4 billion, compared with a net outflow of $118.4 billion in 2024.

In his foreword to the report, the World Bank's Chief Statistician, Haishan Fu, described the situation as a troubling contradiction in which developing countries were gaining access to international financing but paying increasingly higher costs to obtain it.

"Low- and middle-income countries are borrowing more, paying more, and, in many cases, leaving less for long-term development," Fu said.

He warned that the growing cost of debt servicing was draining resources that could otherwise be invested in infrastructure, employment opportunities, education, healthcare and other critical sectors.

Fu stressed that the priority for developing countries should not simply be securing additional loans but obtaining financing that is affordable, transparent and sustainable.

"The objective should, therefore, not be more debt. It should be better financing that is affordable, transparent, sustainable, and capable of supporting investment and growth," he added.

The report also examined Nigeria's return to the international bond market in 2025, when the country raised $2.3 billion through a two-tranche sovereign bond issuance.

Nigeria emerged as the third-largest issuer among Sub-Saharan African countries eligible for financing from the International Development Association (IDA) during the period.

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The bond issuance comprised a 10-year instrument carrying an interest rate of 8.625 per cent and a 20-year bond with an interest rate of 9.125 per cent.

While the transaction demonstrated Nigeria's continued access to international capital markets, the interest rates also highlighted the relatively high cost of obtaining foreign loans from private investors.

The World Bank observed that borrowing costs remained elevated across developing economies in 2025, particularly for countries with weaker credit ratings.

For IDA-eligible countries, the average interest rate on new borrowing commitments from private creditors increased to 8.2 per cent, the highest level recorded since the late 1980s.

In contrast, borrowing from official creditors remained considerably cheaper, with average interest rates holding at 2.7 per cent between 2024 and 2025.

The difference between the cost of borrowing from private and official lenders widened to 5.5 percentage points in 2025, compared with 3.4 percentage points in 2016.

Nigeria's country profile further showed that the average interest rate on new official external debt commitments stood at 1.9 per cent in 2025, against 9.6 per cent for private creditors.

The report also highlighted significant differences in repayment terms. New official loans obtained by Nigeria had an average maturity of 25 years and a five-year grace period, while private creditor financing carried an average maturity of 12 years and an eight-year grace period.

The figures underscore the comparatively expensive nature of private international borrowing and the potential pressure such loans could place on the country's future finances.

Another issue highlighted in the report was Nigeria's involvement in a relatively complex financing arrangement known as a Total Return Swap (TRS), which has become an alternative source of foreign currency liquidity for some governments.

The World Bank identified Nigeria alongside Angola, Argentina, Colombia and Senegal as countries that had entered into TRS arrangements since 2024.

Under the arrangement, governments obtain foreign currency financing by using government securities or other assets as collateral.

The report disclosed that Nigeria entered into a $5 billion TRS transaction in 2026, with a three-year maturity and a collateralisation ratio of approximately 133 per cent.

This means the country pledged domestic securities valued at about $6.7 billion to secure the $5 billion financing.

Although such arrangements can provide governments with immediate access to foreign currency and potentially lower short-term financing costs, the World Bank warned that they expose borrowers to collateral, margin-call, refinancing and transparency risks.

It further cautioned that the growing use of these financial instruments could make it difficult to determine the full extent of government liabilities if the transactions are not properly disclosed.

The bank maintained that any arrangement involving an upfront cash payment and an unconditional obligation to repay should be recognised as debt, even when it includes derivative components.

It therefore urged governments to provide detailed information about the amount borrowed, maturity periods, collateral used, collateralisation ratios, margin requirements and repayment conditions.

According to the report, inadequate disclosure could leave investors, policymakers and the public without a clear understanding of the financial risks associated with such transactions.

Nigeria's latest debt position forms part of a broader increase in external borrowing across developing economies, particularly in Africa.

The World Bank's historical figures show that Nigeria's external debt has expanded considerably over the past decade, rising from $83.21 billion in 2015 to $145.02 billion in 2025.

This represents an increase of approximately $61.8 billion within 10 years, highlighting the growing scale of the country's financial exposure to foreign creditors and the mounting importance of sustainable debt management.