Nigeria Faces Rising Debt Pressure as Interest Service Costs Hit 20-Year High, Oxford Economics Warns

The research firm said rising borrowing costs, coupled with political risks and weak external positions, continue to weigh on the country's fiscal outlook despite broader improvements across emerging markets.

Nigeria is among a group of emerging economies facing heightened debt vulnerabilities as government interest servicing costs rise to their highest level in 20 years, according to a new report by Oxford Economics.

The global advisory firm said interest payments across emerging markets reached 11.1% of government revenue in 2025, marking the highest level in two decades and reflecting the combined impact of heavier debt burdens and higher global borrowing costs.

Despite the increase, Oxford Economics said overall sovereign risk has remained below its 2022 peak, supported by stronger institutions, improved external balances and deeper domestic financial markets across many emerging economies.

The report noted that stronger nominal economic growth has also helped ease debt sustainability pressures by offsetting some of the effects of inflation on government debt servicing. According to the economists, many larger emerging economies can still reduce their debt-to-GDP ratios over time while maintaining modest primary deficits.

However, the firm warned that elevated interest payments are reducing governments' fiscal flexibility, leaving less room to respond to economic shocks or fund development priorities.

Oxford Economics identified "Nigeria, Egypt, Kenya and Pakistan" as countries facing the greatest risks, citing a combination of high debt servicing costs, political and geopolitical uncertainties, and fragile external positions.

The report, authored by Gabriel Sterne, Head of Global Emerging Markets, and Evghenia Slepsova, Senior Emerging Markets Economist at Oxford Economics, said this mix of vulnerabilities has historically increased the likelihood of sovereign financial distress.

While the report concluded that emerging markets have become more resilient in recent years, it cautioned that countries with limited fiscal buffers and persistently high borrowing costs remain exposed to renewed economic and financial pressures if existing risks intensify.

For Nigeria, the findings underscore the ongoing challenge of balancing rising debt obligations with the need to support economic growth and public investment amid an uncertain global financial environment.

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