The High Cost of Borrowing for Developing Economies
The Group of 24 (G24) Director, Iyabo Masha, has highlighted the persistent challenge faced by developing economies, including Nigeria, in accessing affordable financing. According to her, these nations continue to face significantly higher borrowing costs compared to advanced countries due to several structural and economic factors.
During a press interaction in Abuja, Masha explained that the disparity in borrowing costs is largely driven by weak revenue structures, high debt burdens, and limited access to concessional financing. She emphasized that research consistently shows developing countries pay interest rates that are sometimes three or four times higher than those of developed economies.
Masha noted that while there is a distinction between the cost of borrowing in the private market and the cost of loans from institutions like the World Bank or IMF, the overall issue remains significant. “The point is that most of these countries have high borrowing costs, which has become a big issue,” she said.
Factors Influencing Interest Rates
A key factor contributing to this situation is how lenders assess risk. Masha pointed out that creditors primarily look at a country’s income-generating capacity when determining interest rates. “How much is this country pulling in from taxes? Because that is what you are going to use to service your debt,” she explained.
She further elaborated that credit agencies typically base their assessments on current income levels, rather than considering the long-term potential of an economy. This approach often results in higher interest rates for developing countries. Masha suggested that if credit agencies were to incorporate an economy’s endowments or future growth prospects into their evaluations, it could lead to more favorable interest rates.
Challenges in Developing Economies
Many developing countries, including Nigeria, struggle with low tax revenues and large informal sectors, which weaken their financial profiles in the eyes of lenders. “Many countries don’t have strong tax frameworks. A large part of the economy is informal and not taxed. So, when lenders base their judgment only on the income coming in, it leads to higher interest rates,” Masha added.
She also addressed the issue of Nigeria’s eligibility for debt relief. According to her, the country may not qualify for meaningful debt relief in the near term due to its current borrowing structure and continued ability to service obligations. “Nigeria is well-resourced and still has the capacity to repay its loans,” she said.
Debt Relief and Global Frameworks
Masha explained that global debt relief programs typically apply to groups of countries rather than individual nations. She cited the G20 Common Framework as an example of a mechanism introduced to assist struggling economies. However, she noted that this framework applies only to bilateral debts and does not cover multilateral or private creditors.
“By going through this Common Framework, it’s essentially a restructuring. So, if a country was paying $100, it may now pay $80. It doesn’t cancel the debt, but at least it gives some relief,” she said.
Masha emphasized that the G24 is advocating for broader participation from all categories of creditors to make such relief more impactful. She also highlighted that countries must officially declare their inability to meet debt obligations before they can access relief. “Nigeria is meeting its obligations. Nigeria is paying its debt. So that means it’s able to afford it,” she added.
Nigeria’s Debt Profile
Despite rising concerns about its debt levels, Nigeria remains an attractive destination for investors in international capital markets. “Nigeria is still attractive to the external market. They are still able to borrow. I think there was a report recently of a huge amount of borrowing. So, it is still a very attractive market,” Masha said.
Nigeria’s total public debt has surged significantly in recent years, driven by fiscal deficits, exchange rate pressures, and increased reliance on both domestic and external borrowing. Data from the Debt Management Office shows that the country’s total public debt increased to N159.28tn as of 31 December 2025.
The debt stock comprises domestic borrowings, multilateral loans from institutions such as the World Bank and the International Monetary Fund, bilateral loans, and a growing share of commercial debt, including Eurobonds. While Nigeria’s debt-to-GDP ratio remains moderate, its debt servicing-to-revenue ratio is high, putting pressure on government finances.
