Borrowing won’t fix growth, IMF warns as Nigeria’s debt mounts

Countries must prioritize structural reforms and fiscal discipline to boost long-term growth rather than relying on borrowing, Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), has said.

Speaking ahead of the IMF’s updated World Economic Outlook on Friday, Georgieva highlighted the need for sustainable policies to confront persistent challenges like high inflation, fiscal deficits, and global uncertainty.

“Countries cannot borrow their way out. They can only grow out of this problem,” Georgieva warned, pointing out that medium-term global growth prospects are at their weakest in decades.

She flagged rising funding costs for emerging and low-income countries like Nigeria, where a strong US dollar and high global interest rates have increased debt-servicing burdens. “Lower-income countries remain vulnerable despite reforms,” she said, adding that new economic shocks would affect them most severely.

The IMF’s call for fiscal prudence comes amid growing concerns over Nigeria’s mounting debt. The Debt Management Office (DMO) said Monday that Nigeria’s total public debt rose to N142.3 trillion as of September 2024, a N8 trillion increase from June 2024.

The DMO attributed the rise to increased domestic borrowing and the impact of exchange rate depreciation on external debt. Nigeria also faces a N13.08 trillion budget deficit for 2025, which it plans to finance with more loans, a strategy critics argue exacerbates its fiscal vulnerabilities.

Georgieva urged nations like Nigeria to balance necessary spending cuts with growth-friendly reforms, focusing on policies that enhance productivity, attract investment, and build resilience.

Post-pandemic fiscal adjustments are unavoidable, but “countries must avoid stifling future growth potential,” she said. Nigeria’s government, however, maintains that borrowing is essential for infrastructure development and economic recovery, despite skepticism over its long-term sustainability.

Economic Outlook

In its updated World Economic Outlook that was later released Friday, the IMF highlighted persistent challenges in Sub-Saharan Africa’s economic growth.

Conflict, natural disasters, and limited financing remain key drivers of subdued and uneven growth across the region, it said. A stronger dollar and tighter global financial conditions could deepen risks for countries already grappling with high debt burdens and restricted access to financing.

“And given that many Sub-Saharan African countries already have limited financing and excessive debt burdens, that might bring downside risk to growth,” IMF Chief Economist Pierre-Olivier Gourinchas said during a press conference. He noted that the IMF’s growth projection for the region remains at 4.2% in 2025, unchanged from October, and inflation is expected to “decline, although at a slightly faster pace.”

Globally, the IMF’s growth outlook remains steady at 3.3% for both 2024 and 2025. Gourinchas remarked, “This means that the very large global disruptions that started with the pandemic, the war in Ukraine, and triggered the largest inflation surge in 40 years are behind us. This is the end of a cycle and the beginning of a new one.”

Country-specific projections show mixed fortunes. The IMF retained Nigeria’s economic growth forecast at 3.2% in 2025, and projected a decline by 3.0% in 2026.

For South Africa, it projects 1.5% in 2025 and in 2026 a slight uptick to 1.6%. Egypt’s growth forecast was downgraded to 3.6% in 2025 and 4.1% in 2026 due to “weakened confidence in the middle of foreign exchange restrictions and shortages.”