The World Bank has raised concerns over the Federal Government’s plan to address the ₦3.3tn debt owed to power-generating companies, warning that the initiative could significantly impact Nigeria’s fiscal stability.

In its latest Nigeria Development Update titled “Nigeria’s Tomorrow Must Start Today – The Case for Early Childhood Development,” the global financial institution explained that the government’s approach—anchored on a ₦4tn bond programme—transforms existing sector liabilities into formal public debt.

The programme, introduced under the Presidential Power Sector Debt Reduction Programme, is designed to settle legacy debts accumulated between 2015 and April 2025. It began with a ₦590bn bond issuance allocated to generation companies, carrying a seven-year tenor and a fixed interest yield of 17.5 per cent.

Although the bonds are issued through a financing vehicle linked to the Nigeria Bulk Electricity Trading Plc, the World Bank stressed that the Federal Government’s full guarantee shifts the financial burden directly onto public finances.

According to the report, this structure provides short-term liquidity relief to power generation companies and gas suppliers but creates long-term fiscal obligations, as both the principal and interest repayments will be funded from government revenues over time.

The institution emphasized that, under international standards, the bond programme qualifies as Public and Publicly Guaranteed (PPG) debt. As such, it must be transparently recorded in Nigeria’s official debt statistics and integrated into fiscal planning frameworks.

“By securitising arrears, the programme spreads repayment over time and supports the electricity value chain,” the report noted. “However, it also establishes a recurring financial commitment that must be carefully managed within the national budget.”

The World Bank further warned that failure to fully account for these obligations could obscure the country’s true debt position and undermine efforts to maintain fiscal discipline.

Nigeria’s total public debt already stood at approximately $110.3bn (about ₦159.2tn) as of December 2025, and the addition of new guaranteed liabilities could increase pressure on government finances.

Despite the risks, the bond programme represents one of the most ambitious efforts to resolve longstanding liquidity challenges in the power sector—issues that have historically limited investment and contributed to unstable electricity supply.

While acknowledging the potential benefits of clearing arrears and improving cash flow within the sector, the World Bank stressed the importance of balancing reform efforts with fiscal sustainability.

It concluded that transparent reporting, prudent debt management, and comprehensive fiscal planning would be critical to ensuring that the intervention strengthens the power sector without creating long-term economic strain.