Nigeria’s federal government has sharply increased domestic borrowing since 2021, raising alarm about the crowding-out of private investment. Official figures show Nigeria’s public debt jumped from ₦97.3 trillion (end-2023) to ₦121.7 trillion by March 2024.
The rise was driven by new bond issuances and the conversion of a ₦7.3 trillion central bank “Ways and Means” overdraft into debt. Analysts warned that 2024 borrowing would far exceed the ₦6.06 trillion target – indeed, Cordros Capital estimated FG domestic debt at about ₦7.27 trillion in 2024.
By October 2025, Nigeria had raised roughly ₦15.8 trillion locally – well above the ₦13.08 trillion full-year provision – and planned Eurobond sales could push 2025’s total financing near ₦23 trillion.
Looking ahead, the 2026 budget envisions a ₦58.18 trillion spending plan with a ₦23.85 trillion deficit , implying an even steeper borrowing requirement. These figures underscore an acute reliance on domestic capital markets to fund widening fiscal gaps.
Domestic Borrowing Trends
Nigeria’s borrowing from local markets has surged in recent years. For example, domestic financing leapt from roughly ₦2.3 trillion in 2021 to about ₦6 trillion in 2022, reaching an estimated ₦7.0 trillion in 2023 to bridge yawning deficits.
The 2024 budget set aside ₦6.06 trillion for new domestic loans , but actual needs are higher. By late 2025, the Federal Government had already raised nearly ₦15.8 trillion in 10 months – about 55.6% more than the prorated limit – and plans to borrow about ₦3.38 trillion more in external Eurobonds.
In effect, lawmakers have repeatedly expanded borrowing authorisations. For instance, in late 2023 the Senate approved a ₦7.3 trillion “securitisation” of Ways-and-Means advances (turning the central bank overdraft into formal debt).
Yet the new 2026 budget deficit (≈₦23.85 trillion ) is nearly double 2025’s shortfall, raising the question: can domestic markets absorb such growth, or will Nigerians see even tighter credit?
In Q1 2024 Nigeria’s domestic debt rose from ₦59.1T to ₦65.6T (Q4’23→Q1’24). Official data attribute this jump to ₦2.81T in new borrowings (out of a ₦6.06T annual target) and the accounting of ₦4.90T in Ways-and-Means advances.
These trends accelerated in 2025: domestic issuance (mostly T-bills) hit ₦15.8T in 10 months, far exceeding the annual projection. Analysts note the policy mix widened fiscal deficits but relied heavily on short-term instruments (e.g. Treasury Bills) to meet cash needs.
As a result, Nigeria’s average domestic yields have climbed. The CBN’s 27% base rate (MRR) has increased lending rates into the mid-30% range.
Looking ahead, the 2026 budget assumes 2025 outputs near ₦64. It expects a rate of 85/barrel and a realistic ₦1,400/USD rate. However, it still projects an exchange rate of ₦1,459 to the dollar and large deficits.
In short, Nigeria’s fiscal framework now depends on very large bond programmes, raising questions about sustainability.
Crowding Out the Private Sector
Economic theory warns that when government borrowing soaks up financial resources, private businesses can struggle to get credit. In Nigeria’s case, there is growing evidence of this crowding-out effect.
A recent econometric study finds that higher public debt growth causes a significant decline in private sector credit. This confirms that government borrowing is impeding lending to commerce.
Likewise, another analysis shows that while banks initially absorb new government bonds, a year later their private loan portfolios shrink. The World Bank’s diagnostics have echoed this:
“Mainly domestically financed fiscal deficits, together with central bank operations, crowd out private sector borrowing as domestic yields increase”.
These pressures are visible in market data and commentary. In the first half of 2025 banks placed about ₦26.4 trillion into T-bills and open-market instruments, tightening liquidity for business lending.
One survey noted that over 70% of risk assets in Nigeria’s banking industry were government securities. This means that over 70% of the funds available for loans in banks have been borrowed by the government. As a result, less than 30% are left for private borrowers.
Authorities have kept the rediscount rate at 27% to attract such funds. This decision pushes normal lending rates to 35–40%. At those levels, long-term project financing becomes “almost impossible” for firms.
Key signs of crowding-out in Nigeria include:
Banks favouring sovereign debt: Yields on FGN bonds are high. Lenders are parking cash in government papers. They prefer this over extending new business loans.
Soaring interest rates: Record MPR lifts retail lending costs, deterring capital-intensive projects. Credit squeeze:
Private sector credit recently increased. However, the share of loans going to industry and SMEs has decreased. This reflects constrained liquidity.
In practical terms, entrepreneurs and manufacturers report difficulty obtaining finance. One analyst observes that excessive sovereign borrowing “escalates the cost of funds and discourages investment in productive sectors”.
Another notes that as banks pile into high-yield bonds, “manufacturers and SMEs face higher borrowing costs. They experience restricted credit access. This situation is slowing output and job creation.”
This validates fears. The government’s domestic debt is competing for limited savings. As a result, money is becoming more scarce. It is also becoming more expensive for private enterprise.
Global Comparisons
Nigeria’s experience is not unique. Other countries that turned to domestic borrowing have seen similar strains. For example, Kenya’s recent fiscal crunch—compounded by aid cuts—led its government to take on massive internal debt.
Analysts there note that debt-servicing now consumes over 60% of revenues. This diverts funds and drives up borrowing costs, thereby “crowding out private sector credit.”
Kenya’s Medium-Term Debt Strategy report explicitly warns about an issue in borrowing. It states that the “increased domestic borrowing continues to crowd out the private sector.” This situation suppresses economic dynamism.
These parallels suggest that heavy reliance on local funding can throttle private growth when fiscal imbalances are large.
There are, however, counterexamples. Some studies (e.g. on Sri Lanka) have found little evidence of crowding-out, implying that outcomes depend on each economy’s depth and policy mix.
In advanced economies with deep bond markets, central banks can offset demand. In these cases, government funding has not always squeezed private investment.
By contrast, emerging economies like Nigeria have shallower capital markets, making them more vulnerable.
This context underscores that Nigeria must tread carefully: without countermeasures, its borrowing spree risks repeating the credit crunch seen elsewhere.
Policy Implications and Recommendations
Policymakers and analysts agree the current trajectory is unsustainable. Nigeria will need to rebalance its funding mix and tighten fiscal discipline. Proposed measures include:
Diversify funding sources: Shift away from short-term domestic paper toward longer-tenor, concessional external financing. Experts recommend “shifting from short-term domestic instruments to longer-tenor, concessional external loans.” They advise reducing reliance on local markets to ease interest-rate pressures.
Strengthen revenue mobilisation: Broaden the tax base (e.g. VAT expansion to informal sectors) and plug revenue leaks. The government’s own reform agenda (e.g. removing oil subsidies and improving tax collection) aims to boost non-debt funding.
Cut waste and contain expenditures: Streamline governance costs by trimming the spending on overhead and non-productive subsidy programmes. Tighter budgeting and realistic oil price/output assumptions can reduce the need for emergency borrowing.
Improve debt management: Enforce borrowing guidelines so that bond issuance is aligned with capacity. Avoid excessive central-bank Ways-and-Means advances; where used (as in 2023’s ₦7.3T securitisation), make sure prompt repayment. Transparency in borrowing plans will help reassure markets and credit agencies.
In sum, experts urge a comprehensive strategy. Continued heavy domestic debt issuance must be balanced by fiscal reforms and external funding. As one study concludes, the government should “manage and reduce public debt.” It should also diversify its borrowing sources to prevent crowding out.
If Nigeria can implement these reforms, it can reverse the current crowding effect. These reforms include boosting revenues, cutting deficits, and allowing more credit for business. Otherwise, financing of the 2026 deficit and beyond may squeeze the private sector. This could slow growth just as the economy needs investment most.
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