The problem can be resolved by stronger revenue mobilisation, transparent and disciplined borrowing, argues FELIX OLADEJI
Nigeria’s public finance debate has reached a point where the interpretation of economic indicators matters almost as much as the indicators themselves. When the World Bank reported that federal government interest payments amounted to 124.19 per cent of revenue in the first half of 2026, the figure raised an uncomfortable question about the government’s capacity to finance its obligations without constraining other public priorities. The Federal Government’s subsequent objection, which argued that the calculation included debt serviced on behalf of state governments and compared it with an incomplete revenue base, introduced an important qualification. Yet the disagreement should not be reduced to a contest over which institution has presented the more persuasive statistic. The more consequential question is whether Nigeria is generating enough revenue to service its obligations while financing the infrastructure, public services and productive investments required to improve living standards.
The dispute followed the World Bank’s October 2026 Nigeria Development Update, which reported that interest payments rose to ₦7.7 trillion in the first half of 2026, from ₦5.6 trillion in the corresponding period of 2025. Federal revenue increased over the same period, rising from ₦3.6 trillion to ₦6.2 trillion. However, the bank’s figures indicated that interest payments exceeded reported federal revenue by approximately ₦1.5 trillion. In response, the Federal Ministry of Finance argued that the calculation was misleading because the interest figure included debt serviced by the Federal Government on behalf of other tiers of government, including external loans to states. It also maintained that the revenue figure excluded some independent revenue earned by government agencies and enterprises but not yet remitted to the Treasury, while failing to account adequately for the seasonal timing of certain tax receipts.
These objections deserve serious consideration. A fiscal ratio is only as meaningful as the consistency of the figures used to calculate it. Comparing obligations that cover several levels of government with revenue attributed to only one level can produce a distorted picture of the relevant government’s financial position. Similarly, a six-month assessment may not capture the full pattern of annual revenue collection, particularly where statutory payment schedules concentrate some receipts in the second half of the year. The Ministry is therefore right to insist that debt indicators should be interpreted in context rather than presented as definitive evidence of fiscal distress.
However, identifying weaknesses in a particular calculation does not eliminate the underlying fiscal challenge. The reported ₦7.7 trillion in interest payments remains significant, even as the government disputes the basis for expressing it as a percentage of revenue. The fact that revenue rose to ₦6.2 trillion is also important, but the increase does not automatically establish that the government has achieved a comfortable fiscal position. The appropriate response is to clarify the figures, publish a consistent alternative calculation and explain what the resulting numbers mean for the government’s capacity to meet its obligations. Disputing an indicator should initiate a more rigorous assessment, not bring the debate to an end.
The distinction is particularly important because debt sustainability cannot be assessed through the size of public debt alone. A country may carry a relatively moderate debt stock and still experience considerable fiscal pressure if its revenue is too weak to service that debt comfortably. Conversely, a country with a larger debt stock may be better positioned to meet its obligations if it has a broader and more productive revenue base. The relationship between debt costs and revenue therefore offers an important measure of fiscal flexibility, although it must be considered alongside the maturity of obligations, borrowing costs, the currency composition of debt, economic growth and the government’s broader expenditure commitments.
For Nigeria, this makes revenue mobilisation central to the debt debate. The country’s challenge is not simply that it owes money, but that the resources available to the government remain constrained relative to the scale of its responsibilities. Interest payments compete with spending on roads, electricity, education, healthcare, security and social protection. When debt costs absorb a large share of available revenue, the government has less room to finance these priorities without increasing borrowing, accumulating payment obligations or reducing other expenditure. The resulting pressure can persist even when the government remains legally entitled to borrow and continues to meet its contractual obligations.
This is why the government’s emphasis on improving revenue collection is relevant but should be assessed against the pace at which interest costs are rising. According to the Finance Ministry, federal revenue increased by 72 per cent between the first halves of 2025 and 2026, while interest payments rose by 38 per cent. On the same calculation, the interest-to-revenue ratio declined from 156 per cent to 124 per cent, and the difference between interest payments and revenue narrowed from ₦2 trillion to ₦1.5 trillion. These figures suggest an improvement in the relationship between revenue and interest costs over the period. They should not be dismissed simply because the ratio remains elevated.
Nevertheless, the direction of change and the level of fiscal pressure are separate questions. Revenue growing faster than interest payments is encouraging, but it does not establish that the government has sufficient fiscal space. A household whose income grows faster than its debt payments may be improving its financial position while still struggling to cover essential expenses. The same principle applies to public finance. The relevant question is not only whether the ratio is declining, but whether it is falling towards a level that allows the government to finance its responsibilities without excessive dependence on borrowing or persistent trade-offs against essential expenditure.
The government also argues that the first-half ratio should not be treated as a definitive measure of annual debt sustainability. This is a legitimate caution. A six-month snapshot can be distorted by the timing of revenue collection and debt payments, and a complete assessment should consider the entire fiscal year. The Ministry has cited the World Bank’s projection that Nigeria’s total debt service, covering both interest and principal repayments, will amount to 46 per cent of revenue in 2026. That projection provides a broader perspective, but it should not be confused with the first-half interest-to-revenue ratio. The two indicators measure different things over different periods: one compares interest payments with revenue during six months, while the other concerns projected full-year debt service, including principal repayments.
Rather than treating these measures as competing verdicts, policymakers should explain how they fit together. A transparent assessment would show the government’s interest obligations, principal repayments, total debt service, revenue collections and borrowing requirements across comparable periods. It would also distinguish between obligations attributable to the Federal Government and those it services on behalf of states or other public entities. Such a presentation would make it easier to understand whether the reported pressure reflects timing, accounting scope, the cost of borrowing or a more persistent mismatch between public revenue and expenditure.
The treatment of state external loans is especially important. If the Federal Government services obligations on behalf of state governments, the fiscal analysis should identify these payments clearly and explain how they are accounted for. Where the relevant revenue belongs to another tier of government, the comparison should reflect that distinction. However, the existence of intergovernmental obligations should not become a reason to exclude them from a broader assessment of public-sector risk. The question is not merely which government is responsible for a payment, but how the obligation affects the public finances, the allocation of resources and the capacity of the relevant institutions to meet their responsibilities.
This distinction also matters because Nigeria’s fiscal position extends beyond the Federal Government. State governments receive allocations from the federation and generate revenue independently, while carrying their own expenditure responsibilities and debt obligations. The World Bank’s October update examined how increased revenue has reshaped state spending priorities, noting that aggregate state revenues rose by about 93 per cent in real terms between 2023 and 2025. State expenditure also increased, with capital spending accounting for a larger share of total expenditure. These developments create opportunities to improve infrastructure and public services, but they also make the coordination of fiscal policy across levels of government increasingly important.
Higher allocations and stronger revenue flows do not automatically produce better public services. States must still demonstrate that additional resources are being spent efficiently and that capital projects deliver tangible benefits. Similarly, the Federal Government must show that improvements in revenue collection translate into a stronger capacity to finance its obligations and development priorities. A complete assessment of fiscal sustainability should therefore consider not only how much revenue each tier of government receives, but also the quality of expenditure, the distribution of responsibilities and the results achieved with public funds.
The opportunity cost of debt servicing makes this scrutiny particularly urgent. In its first-half comparison, the World Bank reported that federal capital spending fell to approximately 0.3 per cent of GDP, or ₦700 billion, from 1 per cent of GDP a year earlier. The decline does not, by itself, prove that interest payments caused the reduction; expenditure patterns can reflect several factors, including the timing of project execution and budget implementation. Nevertheless, the figures raise a question that deserves attention: how can the government protect productive investment when debt costs and other recurrent obligations compete for limited resources?
This is where the debt debate becomes more than an argument about accounting. Public borrowing can be justified when it finances investments that expand productive capacity, improve infrastructure or strengthen the economy’s ability to generate future revenue. But borrowing becomes more difficult to defend when its costs leave insufficient room for the investments needed to support growth. Roads, power infrastructure, public education and healthcare are not merely competing demands on the budget. They can also contribute to productivity, employment and the expansion of the future tax base. If debt servicing persistently restricts these investments, the government risks weakening the very economic conditions that could make its obligations easier to manage.
The answer is not to assume that all borrowing is harmful or that every reduction in capital spending is evidence of fiscal mismanagement. Nigeria has substantial infrastructure and development needs, and responsible borrowing can help finance projects whose benefits extend beyond the current budget cycle. The issue is whether borrowing decisions are accompanied by credible assessments of their costs, expected returns and implications for future revenue. The government should be able to demonstrate not only that loans were authorised, but also that the resources raised were used productively and that the resulting obligations remain manageable under realistic economic conditions.
For the same reason, legal compliance and debt sustainability should not be treated as interchangeable concepts. The Finance Ministry has maintained that federal borrowing complies with the limits approved by the National Assembly, the 2026 Appropriation Act and the relevant fiscal and debt-management laws. These assurances matter because public borrowing must operate within an accountable legal framework. Yet compliance establishes that borrowing has followed prescribed procedures; it does not, on its own, establish that the cost of borrowing is comfortable or that the resulting expenditure represents good value for money. Both questions require scrutiny.
Nigeria must also address the revenue side of the equation more fundamentally. Revenue growth should be sustained through a broader, more reliable and productive tax base, stronger tax administration, improved compliance and better management of public assets and government-generated income. This requires more than raising rates or placing additional pressure on already constrained households and businesses. A durable revenue strategy should reduce avoidable leakages, improve the efficiency of collection, limit unjustified exemptions and make it easier for productive enterprises to operate within a predictable system. The objective should be to raise more public revenue without undermining the economic activity on which future revenue depends.
Equally important is the transparent remittance of revenue earned by government agencies and enterprises. If substantial amounts are generated outside the Treasury but not remitted promptly, the government’s reported fiscal position may fail to reflect resources that have already been earned. The Ministry has raised this concern in its response to the World Bank. The appropriate next step is to quantify the amounts involved, identify the agencies concerned, explain the reasons for delayed remittances and establish a clear timetable for reconciliation. General assertions about excluded revenue are less useful than verifiable figures that can be incorporated into a consistent fiscal assessment.
The World Bank, for its part, should make the scope and methodology of its calculations sufficiently clear to allow independent scrutiny. Where a headline ratio combines obligations across different tiers of government or relies on a particular definition of revenue, those assumptions should be explicit. The government should then respond with comparable data and a transparent reconciliation rather than relying primarily on statements that the reported conclusion is misleading. Credible public finance analysis requires both institutions to demonstrate how their numbers were derived and why the measures they use are appropriate for the conclusions they draw.
Ultimately, Nigeria does not need a debate in which the government must be right and the World Bank must be wrong, or the reverse. It needs a fiscal framework in which public data can be tested, disagreements can be resolved and policy decisions are guided by evidence rather than institutional defensiveness. If the 124 per cent figure overstates the Federal Government’s interest burden because of mismatched categories, the government should demonstrate the corrected calculation. If the ratio accurately captures a serious first-half pressure but does not reflect the full-year position, the data should show that as well. Neither conclusion should have to depend on the authority of the institution presenting it.
The Federal Government is right to insist that debt indicators must be read in context. But context should sharpen accountability, not weaken it. A falling ratio is encouraging, yet the public deserves to know whether the improvement is sustainable, how much revenue is available after debt obligations are met and what resources remain for essential services and productive investment. The World Bank’s assessment should therefore be treated neither as an unquestionable verdict nor as a statistic that can be dismissed through a methodological objection.
Nigeria’s debt problem cannot be settled by disputing one ratio. It requires stronger revenue mobilisation, transparent accounting across all levels of government, disciplined borrowing and better evidence that public expenditure is producing lasting economic value. The real test of fiscal reform is not whether the government can rebut an uncomfortable statistic, but whether it can build a public finance system in which debt obligations are manageable, investment is protected and rising revenue translates into visible improvements in citizens’ lives.
Oladeji is an incoming PhD student in the Department of English at Texas A&M University, where his research interests include African literature and security governance.