Nigeria is living above its means.

With debt servicing exceeding revenue, the country has gone overboard—threatening its ability to pay back. The issue isn’t just that we’re taking on more debt; we're also rapidly depleting rainy day funds like the Excess Crude Account (ECA), which has declined from over $2 billion in 2015 to less than $400,000 today.

Key takeaways:

  • Amidst rising debt obligations and fast-depleting rainy day funds, there are two ways Nigeria can navigate a looming debt crisis—restructure debt or borrow more.

  • Considering the structure of Nigeria’s current loans, debt restructuring is a complex and politically expensive option due to the stringent austerity measures Nigeria would have to undergo. The IMF and other bilateral partners would expect reforms like subsidy removal, public spending cuts and other budget-tightening measures.

  • The borrowing option will buy the nation time, but it comes with risks. Borrowing from other countries often means aligning with nations seeking personal gain that might not be as valuable to our progress. Borrowing from the capital market also attracts risks like poorer credit ratings and more expensive interest rates.

It’s time to consider our options if we cannot repay our loans. With the country taking on more expensive loans and not making enough revenue, it’s only a matter of time before we’re unable to pay them back. Nigeria has primarily two options: debt restructuring and continuous borrowing. Last week we explored the former, and today we’ll see the possibility of the latter: continued borrowing.

But first, a recap of what debt forgiveness or restructuring would look like for Nigeria. Nigeria is already familiar with this and has done it repeatedly in the past. In 2004, Nigeria requested debt forgiveness from the Paris club, but before that, we had restructured our debt with international banks in 1992.

In 2004, Nigeria owed the Paris club and multilateral organisations like the World Bank and IMF around $33 billion. The country could either improve the economy and the well-being of the people or pay back loans. Luckily, we successfully restructured the loan, paid back all of it and got debt forgiveness of about $18 billion.

However, today’s debt is very different from 2004. For one, most of Nigeria’s external creditors are investors like hedge fund