Nigeria is Africa’s largest economy by population, yet with a GDP of $253 billion, it ranks as the continent’s fourth-largest economy by nominal annual output. In 2014, after rebasing its GDP to $510 billion, Nigeria surpassed South Africa to become Africa’s largest economy—ahead of a country with a well-established industrial base and significant manufacturing exports. As Nigeria prepares to announce another GDP rebase, it presents an opportune moment to examine how fiscal policy—specifically expenditure patterns and practices—shapes sustainable economic growth. This analysis will focus on Nigeria’s fiscal trajectory, particularly its debt-to-GDP ratio, and compare it with those of other major African economies, including South Africa, Egypt, Algeria, and Ethiopia. The aim is to draw valuable lessons for crafting future policies that will ensure Nigeria’s long-term economic stability.
Nigeria’s Fiscal Challenge in Context
Nigeria has consistently ranked as one of the largest economies in Africa, but its growing debt burden raises questions about the sustainability of its fiscal policies. While Nigeria’s GDP remains substantial, its debt-to-GDP ratio has been climbing steadily—from 39.7% in 2022 to an estimated 51.3% in 2024. This growing reliance on borrowing to meet government expenditures contrasts with more stable debt management seen in countries like Algeria and Ethiopia. For Nigeria, this upward trend in debt suggests an increasing need for more effective economic policies to balance borrowing with revenue generation.
Debt-to-GDP Comparison: Nigeria vs. South Africa and Egypt
South Africa has maintained the highest debt-to-GDP ratio among the continent’s largest economies, reaching worrying levels above 80% in recent years. Despite its economic strength, South Africa’s high debt ratio reflects the country’s persistent fiscal challenges, compounded by slow economic growth and rising borrowing costs. Nigeria, while not yet at South Africa’s level, is moving in that direction. The sharp increase in Nigeria’s debt levels—from 39.7% in 2022 to 46.4% in 2023—signals a growing fiscal strain that could affect its economic stability if revenue does not keep pace.
Egypt’s debt-to-GDP ratio has also been climbing, from 73.4% in 2023 to 75% in 2024. Though it ranks lower than South Africa’s, Egypt’s fiscal challenges are compounded by inflationary pressures and external debt servicing costs. Unlike Nigeria, Egypt’s debt has been fueled by infrastructure and capital investments aimed at stimulating long-term economic growth. However, the question remains: will Nigeria be able to similarly invest its borrowed funds into productive sectors without overstretching its financial resources?
Fig. 1: GDP of top 5 Major African Economies (2014-2023)
Source: World Development Indicator
Lessons from Algeria and Ethiopia: A Path for Nigeria
In contrast to Nigeria’s growing debt burden, countries like Algeria and Ethiopia have demonstrated the potential for fiscal discipline. Algeria’s debt-to-GDP ratio decreased from 48.6% in 2023 to 38.9% in 2024, while Ethiopia’s fell from 38.7% to 33.6%. Both nations have managed to reduce their debt levels through sound fiscal policies and improved public finance management, demonstrating that effective debt management can be achieved even in resource-dependent economies.
For Nigeria, the key lesson is the importance of controlling borrowing and ensuring that it is directed toward productive investments that can generate future revenues. Unlike Algeria and Ethiopia, Nigeria has yet to implement comprehensive fiscal reforms that curb rising debt while improving revenue collection. Policymakers must focus on strategies that balance borrowing with sustainable revenue growth, such as enhancing tax collection, diversifying the economy, and reducing dependency on oil exports.
Fig. 2: Debt-to-GDP for top 5 Major African Economies (2019-2024)
Source: World Development Indicator
The Case for Economic Diversification and Revenue Expansion
While borrowing remains a necessary tool for funding development, Nigeria must prioritize economic diversification to reduce reliance on debt for everyday expenditures. Increasing non-oil revenue, tackling tax evasion, and attracting foreign direct investment (FDI) are crucial steps for strengthening the country’s fiscal position. As evidenced by Algeria’s reduced debt burden and Ethiopia’s fiscal discipline, a diverse economy generates broader tax revenues and offers greater economic resilience.
Moreover, transparency and accountability in the allocation of borrowed funds must be central to Nigeria’s fiscal policy. Without these measures, there is a risk that increased borrowing may be diverted toward inefficient or non-productive expenditures, deepening the country’s fiscal challenges. Nigeria’s government must ensure that funds are effectively invested in sectors like infrastructure, education, and healthcare, which offer long-term returns in the form of increased productivity and higher tax revenues.
Conclusion: Policy Insights for Nigeria’s Fiscal Future
Nigeria’s rising debt levels should serve as a wake-up call for policymakers. By comparing Nigeria’s fiscal trajectory with those of South Africa, Egypt, Algeria, and Ethiopia, it is clear that sustainable fiscal management requires a balanced approach. While borrowing can fund essential development projects, Nigeria must strengthen its revenue base and reduce its dependence on external borrowing. Effective economic diversification, improved tax collection, and transparency in public finance management will be key to ensuring that debt remains a tool for growth rather than a burden on future generations. The future of Nigeria’s fiscal health depends on its ability to learn from these trends and adopt policies that promote long-term economic stability.
