Peter Obi faults FG’s borrowing, says loans not driving

Nigeria's public debt has become one of Africa's most contentious economic flashpoints, and former presidential candidate Peter Obi has reignited the debate with a damning critique of the Federal Government's borrowing trajectory. As of Q3 2024, Nigeria's total debt stock exceeded ₦97 trillion, yet GDP growth remains sluggish at 3.2%—far below the 5-7% needed to service debt sustainably and reduce poverty. Obi's criticism cuts to the heart of a structural paradox: massive capital inflows are not translating into productive assets, job creation, or improved citizen welfare.

## Why Is Nigeria's Debt-to-GDP Ratio Alarming Investors?

Nigeria's debt-to-GDP ratio now hovers near 35%, pushing toward the 40% threshold that triggers fiscal stress warnings from international rating agencies. Unlike productive borrowing—which funds infrastructure, education, or industrial capacity—a significant portion of Nigeria's loans fund recurrent expenditure (salaries, subsidies, interest payments). The Central Bank of Nigeria's own data shows that debt servicing consumed 93% of government revenue in 2024, leaving minimal fiscal space for investment or poverty alleviation. This structural imbalance is precisely what Obi highlighted: loans are funding consumption, not growth engines.

The multiplier effect—where borrowed capital generates 2-3x economic output—has collapsed. Between 2015 and 2024, Nigeria accumulated $40 billion in external debt while real GDP per capita contracted by 15%. This suggests capital is either leaking abroad through corruption, misallocation, or currency losses, rather than being invested in productive sectors like manufacturing, agriculture technology, or energy infrastructure.

## Where Is the Money Actually Going?

Transparent Budget Initiative data reveals that only 18% of recent loan tranches were earmarked for capital projects. The remaining 82% addresses budget deficits created by low tax revenue (a paltry 6% of GDP) and inflated recurrent spending. Nigeria's public sector wage bill alone consumes 90% of government revenue in many states, leaving zero capacity for development spending without borrowing. This creates a vicious cycle: debt servicing crowds out investment, productivity stalls, tax revenue shrinks, and governments borrow more.

Sectors that should anchor long-term growth—agriculture (2.6% of GDP, employing 35% of workforce), manufacturing (9% of GDP, declining), and energy transition—remain chronically underfunded. Instead, international loans often flow to consumption imports or Chinese-financed infrastructure projects with weak domestic multipliers.

## What Does This Mean for Investors and the Naira?

Obi's critique signals mounting pressure on the fiscal framework ahead of 2025 elections and IMF surveillance reviews. If debt servicing surpasses 100% of revenue, Nigeria risks a ratings downgrade (currently B-/B from Moody's/S&P), triggering capital flight and naira depreciation. Foreign direct investment has already slumped 38% YoY to $1.9 billion, partly due to debt sustainability concerns.

The real risk is not default—Nigeria has never defaulted—but stagflation: inflation remains elevated at 34.6%, wage pressures mount, and borrowed capital fails to expand the productive base. This erodes purchasing power and corporate margins simultaneously.

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