Reported by Weng Patrick Atokor l Journalist at Weng Global
Nigeria’s rising dependence on international financing has come under renewed scrutiny after the World Bank reported that new external loan commitments from private creditors carried an average interest rate of 9.6 per cent in 2025, compared with 1.9 per cent for loans from official creditors.
The figures highlight a substantial difference in the cost of accessing international finance, with private borrowing attracting interest rates approximately five times higher than those charged by official lenders.
The findings are contained in the World Bank’s International Debt Report 2026, which examines external borrowing, debt obligations and financing conditions across developing economies.
For Nigeria, the figures raise important questions about the country’s borrowing strategy, the cost of financing public expenditure and the long-term implications of relying on commercial international lenders.
The difference is particularly significant because the cost of borrowing goes beyond the amount a country initially receives. Interest rates, repayment periods, grace periods and currency movements all influence how much governments ultimately have to repay.
The Cost of Nigeria’s External Borrowing
The World Bank’s country profile provides a more detailed picture of the difference between the two categories of lenders.
| Borrowing indicator | Official creditors | Private creditors |
|---|---|---|
| Average interest rate | 1.9% | 9.6% |
| Average maturity | 25 years | 12 years |
| Grace period | 5 years | 8 years |
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The figures refer specifically to the average terms of new public and publicly guaranteed loan commitments signed in 2025. They should not be confused with the interest rates on every existing external loan held by Nigeria or loans contracted independently by private Nigerian companies.
The distinction is important because Nigeria’s external debt includes government obligations, privately contracted debt without government guarantees and short-term borrowing.
Nevertheless, the comparison reveals the financial implications of the country’s access to different sources of international credit.
Official creditors generally include multilateral development institutions and government-backed lending agencies. Private creditors, on the other hand, include commercial banks, international bondholders and other private financial institutions.
The difference in interest rates reflects the varying financing conditions, lending objectives and risk assessments associated with these institutions.
Why Private International Loans Are More Expensive
Private international lenders generally operate under commercial investment considerations.
Their lending decisions are influenced by factors such as the borrower’s creditworthiness, economic stability, foreign exchange risks, repayment capacity and prevailing conditions in international financial markets.
Countries perceived to have higher borrowing risks may be required to pay higher interest rates to attract investors.
Official development lenders often have different objectives. Their financing may support economic development, infrastructure, poverty reduction and institutional reforms. Some of their lending programmes also provide concessional terms that make borrowing less expensive.
For Nigeria, the difference between 1.9 per cent and 9.6 per cent illustrates how the source of financing can significantly influence the cost of raising external funds.
However, lower interest rates do not automatically make every official loan preferable. Governments must also consider the conditions attached to financing, the availability of funds, disbursement timelines and the economic value of the projects being financed.
The central question is whether borrowed money generates sufficient economic and social returns to justify its cost.
Nigeria’s External Debt Reaches $145 Billion
The borrowing-cost figures come against the background of a substantial external debt portfolio.
According to the World Bank’s International Debt Report 2026, Nigeria’s total external debt stock reached $145.015 billion at the end of 2025, representing a 6.6 per cent increase from the $136.04 billion recorded in 2024.
The country’s external debt has increased considerably over the past decade, rising from $83.213 billion in 2015.
That represents an increase of approximately $61.8 billion over ten years.
The World Bank’s breakdown shows that the external debt stock consists of three major categories:
- Public and publicly guaranteed debt: $62.400 billion.
- Private nonguaranteed debt: $54.476 billion.
- Short-term external debt: $28.139 billion.
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These categories demonstrate why Nigeria’s external debt position cannot be understood by looking exclusively at federal government borrowing.
Public and publicly guaranteed debt includes obligations contracted by public entities and government-backed borrowers. Private nonguaranteed debt represents external obligations of private-sector borrowers that are not guaranteed by a public institution.
Short-term external debt represents another category of foreign obligations, generally involving shorter repayment periods.
The distinction matters because not every dollar recorded in Nigeria’s total external debt represents money borrowed directly by the Federal Government.
Who Are Nigeria’s Major External Creditors?
The World Bank report also provides details about the institutions and countries holding Nigeria’s public and publicly guaranteed external debt.
Multilateral creditors accounted for the largest share, with approximately $31.365 billion.
Private creditors held $24.352 billion, while bilateral creditors accounted for $6.683 billion.
Among multilateral institutions, the World Bank’s International Development Association (IDA) accounted for $18.533 billion.
International Monetary Fund special drawing rights allocations stood at $5.516 billion, while other multilateral creditors accounted for $7.315 billion.
China remained Nigeria’s largest bilateral creditor, with approximately $5.672 billion. France followed with $774 million, while other bilateral lenders accounted for $237 million.
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The figures highlight the importance of international development institutions, bilateral partnerships and commercial financial markets in Nigeria’s external financing structure.
They also demonstrate that Nigeria’s borrowing relationships extend beyond traditional government-to-government loans.
Nigeria’s Return to International Bond Markets
Another important development highlighted by the World Bank is Nigeria’s renewed access to international capital markets.
The report identified Nigeria as the third-largest issuer in Sub-Saharan Africa in 2025, following its $2.3 billion dual-tranche international bond issuance.
The bond transaction was divided into two portions:
- A 10-year bond carrying an interest rate of 8.625 per cent.
- A 20-year bond carrying an interest rate of 9.125 per cent.
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The issuance demonstrated Nigeria’s ability to attract international investors despite the relatively high cost of borrowing.
International bond markets provide governments with an alternative source of financing when domestic revenue and official lending are insufficient to meet funding requirements.
However, accessing these markets comes with considerable financial obligations.
Unlike some development loans, international bonds are typically governed by commercial financing terms. Governments must manage interest payments, principal repayments and refinancing risks.
The maturity of a bond also determines when the principal must be repaid. Large repayments falling due within a relatively short period can create pressure on government finances if sufficient revenue or refinancing options are unavailable.
For Nigeria, the interest rates attached to the 2025 bond issuance demonstrate the relatively expensive nature of accessing commercial international capital.
Debt Servicing and Pressure on Foreign Exchange Earnings
Beyond the size of the debt stock, another important issue is the country’s ability to meet repayment obligations.
The World Bank reported that Nigeria’s external debt service represented 19 per cent of exports in 2025, compared with the previous year’s figure following a 9.6 per cent increase in the ratio.
Debt service as a proportion of gross national income also increased by 6.9 per cent to five per cent.
At the same time, the external debt-to-exports ratio declined by 4.3 per cent to 212 per cent, while external debt as a proportion of gross national income fell by 6.6 per cent to 51 per cent.
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These indicators provide different perspectives on the country’s debt position.
The debt-to-exports ratio compares the outstanding external debt stock with the country’s earnings from exports of goods, services and primary income.
The debt-service-to-exports ratio measures the principal and interest payments made during the year against those export earnings.
Consequently, a country can record an improvement in its debt stock relative to exports while still experiencing an increase in the proportion of export earnings required to service its debt.
This distinction is particularly important for Nigeria because foreign exchange earnings are essential for meeting external financial obligations.
When a country borrows in foreign currencies, it must obtain the necessary currency to meet its repayment commitments. Exchange-rate movements can therefore influence the domestic-currency cost of servicing external debt.
A weaker naira can increase the amount of local currency required to meet dollar-denominated obligations, even when the amount owed in dollars remains unchanged.
For an economy that relies heavily on oil exports for foreign exchange earnings, fluctuations in international oil prices, production levels and export receipts can also influence its capacity to meet external obligations.
The Wider Economic Implications for Nigeria
The difference between private and official borrowing costs has implications beyond government financial records.
Debt servicing competes with other demands on public resources. Governments must balance repayment obligations with spending on infrastructure, healthcare, education, security, agriculture and other development priorities.
When borrowing becomes more expensive, the financial burden of servicing debt can reduce the resources available for these priorities.
This does not mean that all external borrowing is economically harmful.
Foreign financing can support investments that domestic revenue alone may not be sufficient to fund. Properly managed borrowing can help expand electricity generation, improve transportation networks, develop industries and strengthen productive capacity.
The challenge arises when borrowed funds fail to generate returns that justify the financial commitments.
For Nigeria, the effectiveness of external borrowing will therefore depend not only on the interest rates negotiated but also on how the funds are deployed, monitored and accounted for.
There is also a need to distinguish between borrowing for productive investment and borrowing primarily to meet recurrent expenditure or refinance existing obligations.
The economic benefits of financing a project that expands productive capacity may be different from those of borrowing without a clear revenue-generating or development objective.
Global Debt Conditions Add to the Challenge
Nigeria’s borrowing costs are part of a wider challenge facing developing economies.
The World Bank’s International Debt Report 2026 found that the external debt stock of low- and middle-income countries reached approximately $9.4 trillion at the end of 2025, representing a 5.5 per cent increase from the previous year.
The report also highlighted the continuing pressure of debt servicing across developing economies, with debt-service payments reaching approximately $1.4 trillion in 2025.
According to the World Bank, the return of private lending to international markets has improved access to financing, but borrowers continue to face elevated borrowing costs.
The institution’s analysis points to the importance of responsible debt management, stronger financial transparency and improved access to affordable development financing.
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For African economies, the issue is particularly significant because governments must finance development priorities while managing currency exposure, revenue constraints and external repayment obligations.
Nigeria’s experience illustrates the difficult balance between attracting international investment and avoiding borrowing arrangements that could place excessive pressure on future government revenues.
What Should Nigeria Do Next?
The World Bank figures provide an opportunity for Nigeria to reassess the structure and management of its external borrowing.
One priority is to strengthen access to affordable financing from multilateral development institutions and other official creditors where the terms are economically suitable.
Another is to improve the transparency of borrowing decisions, ensuring that the public can understand how much is borrowed, the interest rates attached, repayment schedules and the projects expected to benefit.
The government must also strengthen domestic revenue generation and expand the productive sectors of the economy.
A stronger export base would improve foreign exchange availability and reduce the pressure associated with meeting international repayment obligations.
Equally important is ensuring that borrowed funds are directed towards projects capable of improving productivity, generating economic returns and supporting long-term development.
Nigeria’s $2.3 billion international bond issuance in 2025 demonstrates that the country can access commercial financing. However, the World Bank’s figures underline why access to money should not be the only measure of borrowing success.
The terms of the financing and the benefits generated from it are equally important.
The report does not establish that Nigeria’s entire external debt carries a 9.6 per cent interest rate. Rather, it compares the average terms of new public and publicly guaranteed borrowing commitments from different creditor categories in 2025.
That distinction is essential to understanding the country’s actual debt position.
The Bigger Picture
Nigeria’s external borrowing challenge is no longer simply about how much money the country can raise from international lenders.
It is increasingly about the cost of accessing that money, the conditions attached to it and whether the resulting investments can strengthen the economy enough to support repayment.
The difference between the 1.9 per cent average interest rate from official creditors and the 9.6 per cent charged by private creditors illustrates the financial consequences of borrowing choices.
As Nigeria continues to pursue infrastructure development, economic reforms and fiscal stability, the management of external debt will remain an important measure of its economic policy.
The central question is whether the country can turn international financing into sustainable economic growth without allowing repayment obligations to undermine future development priorities.
For Nigerian taxpayers and future generations, the answer will depend on the quality of borrowing decisions made today.
Weng Global – Stories beyond borders
Sources
- World Bank Group – International Debt Report 2026, Nigeria Country Profile.
- World Bank Group – International Debt Report 2026, Analysis of External Debt Stocks and Debt Flows.
- Premium Times – Nigeria’s external debt up 6.6% to $145bn in 2025.
- Channels Television – Nigeria’s External Debt Hits $145bn as Servicing Burden Rises.
- Punch – Nigeria pays five times more for private external loans – World Bank.
