Analysts predict significant increase in state expenditure ahead of 2027 polls

Nigeria's fiscal consolidation efforts are poised on the brink of uncertainty, with experts cautioning that the impending 2026–2027 election cycle may unleash a significant surge in government expenditure, potentially eroding the nation's recent debt management advancements.

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The country's total public debt has reached a record high of N159.28tn, according to the latest Coronation Economic Note on the Q4 2025 Debt Report, highlighting the precarious state of Nigeria's financial landscape.

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Although the government's debt-to-GDP ratio appears stable on paper, the report underscores a "critical paradox" in Nigeria's ability to fulfill its debt obligations, with the nation's fiscal consolidation narrative still in its formative stages and fragile in its execution.

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The report notes that any increase in pre-election spending poses a substantial risk variable for the 2026–2027 period, which could have far-reaching implications for the country's financial stability.

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The debt-service-to-revenue ratio has reached an estimated 113 per cent in early 2025, indicating that the Federal Government is allocating more resources towards interest and debt repayments than it generates in total revenue.

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This situation is tantamount to the government "rolling obligations forward, creating a self-reinforcing borrowing cycle," rather than servicing debt from its cash flow, as it is spending more on debt servicing than it earns in total revenue.

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Despite a significant expansion in debt of N109tn over the last three years, the government is essentially relying on borrowing to pay back previous loans, according to the report.

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The International Monetary Fund projects that Nigeria's debt-to-GDP ratio will decline to 32.3 per cent by 2026, below the 55 per cent distress threshold, but Coronation analysts argue that this "headline ratio" does not provide a complete picture of the country's debt situation.

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The nation's revenue base remains structurally undersized compared to its African peers, with a tax-to-GDP ratio of about 9–10 per cent, significantly lower than that of South Africa, Kenya, and Ghana, which have ratios of 24 per cent, 16 per cent, and 13 per cent, respectively.

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The National Assembly's recent approval of a new $6bn external borrowing package underscores the country's continued reliance on debt, with analysts emphasizing that aggressive revenue mobilisation, rather than additional borrowing, is the only viable solution to break the cycle.

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According to the report, "revenue mobilisation, not debt management description, is the variable that will determine whether the sustainability trajectory genuinely improves," highlighting the need for a fundamental shift in the country's approach to debt management.

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The report concludes by calling for structural reforms, including the enforcement of the Fiscal Responsibility Act, to ensure that borrowing is utilized for capital investment rather than daily operational expenses, and warning that without these changes, the "spending spike" of an election year could push Nigeria's finances to a breaking point.