Developing economies such as Nigeria continue to face significantly higher borrowing costs than advanced nations, a structural imbalance that raises debt burdens, constrains public investment and slows long-term development.
That was the central message from Group of 24 (G-24) Director Dr Iyabo Masha, who said poorer countries often pay interest rates three to four times higher than richer economies because of weak revenue systems, debt vulnerabilities and global risk perceptions.
Her remarks, delivered during the 2026 Spring Meetings of the IMF and World Bank in Washington, go to the heart of one of the biggest challenges facing emerging markets: how to finance development when capital is expensive.
Why Poorer Countries Pay More
At first glance, the logic appears simple. Lenders charge more when they perceive higher risk. But in practice, this creates a vicious cycle.
Countries with weak tax systems, shallow export bases and volatile currencies are seen as risky. Because they are seen as risky, they borrow at high rates. Because they borrow at high rates, debt servicing consumes revenues. Because revenues are consumed by debt service, they struggle to invest in reforms that would reduce risk.
Nigeria illustrates the dilemma.
Its debt-to-GDP ratio remains moderate by global standards, but its debt-service-to-revenue ratio is far more troubling. That means the issue is not merely how much Nigeria owes, but how much income government generates to pay what it owes.
Revenue, Not Just Debt, Is the Real Story
Masha noted that creditors focus heavily on how much a country earns through taxes, since that determines repayment capacity. That is crucial. A nation with strong revenue mobilisation can sustain larger debt loads than a country with weak collections.
Nigeria’s tax-to-GDP ratio remains among the lowest for large economies. A large informal sector, leakages, exemptions and administrative inefficiencies weaken the state’s fiscal capacity. This means lenders demand a premium.
The Institutional Economics Problem
Economist Douglass North and later Acemoglu & Robinson showed that inclusive, effective institutions are central to prosperity. When institutions are weak, markets price in dysfunction.
Examples include:
- Uncertain policy direction
- Poor tax administration
- Weak rule of law
- Corruption risks
- Currency instability
- Delayed reforms
- Opaque public spending
These institutional weaknesses translate directly into bond yields, loan pricing and investor caution. Debt markets punish weak governance.
Why Debt Relief Is Harder Today
Masha also explained why large-scale debt forgiveness like Nigeria’s Paris Club relief of the 2000s is less likely now.
Then, much debt was owed to bilateral lenders and official institutions. Today, many developing countries borrow from:
- Eurobond investors
- Asset managers
- Commercial banks
- Diverse private creditors
This fragmentation makes coordinated relief harder. Private contracts differ, legal jurisdictions vary and investors may resist concessions. That is why frameworks such as the G20 Common Framework have moved slowly.
Nigeria’s Position: Distressed or Still Investable?
Nigeria remains able to borrow and has continued servicing obligations. That keeps it outside the category of countries formally declaring inability to pay.
Paradoxically, this creates a middle-income trap in sovereign finance:
- Too solvent for relief
- Too constrained for comfort
- Too attractive to ignore
- Too expensive to finance easily
This is where many emerging markets now sit.
Why Borrowing Costs Matter for Growth
High sovereign borrowing costs ripple through the economy.
When government pays more:
- Less money goes to roads, health and education
- Domestic interest rates stay elevated
- Businesses face expensive credit
- Infrastructure gaps widen
- Growth slows
- Poverty reduction stalls
This is why debt pricing is not merely a finance issue. It is a development issue.
What Nigeria Must Do
Rather than waiting for debt relief, Nigeria’s more durable solution lies in reducing perceived risk.
That requires:
1. Revenue Reform
Broaden the tax base without crushing productive enterprise.
2. FX Stability
Predictable currency markets reduce investor fear.
3. Spending Credibility
Show markets that borrowing funds productive assets.
4. Institutional Trust
Transparent procurement, stronger audits and rule-based governance.
5. Export Expansion
Higher non-oil FX earnings improve resilience.
Behavioural Finance Angle
Markets are not purely rational. They also price narratives. Countries known for policy reversals or governance uncertainty often pay more than fundamentals alone justify. Reputation matters. That means communication, credibility and consistency are economic assets.
BrandiQ Takeaway
The high cost of borrowing for developing nations is not simply global injustice, though structural biases exist. It is also a mirror reflecting domestic institutional weakness. Capital goes where it feels safest. Nigeria’s long-term solution is not endless borrowing or hoping for forgiveness. It is building a state strong enough, credible enough and productive enough that lenders no longer demand a fear premium. When institutions improve, interest rates often follow. That is the real path from debt stress to development sovereignty.
