The Federal Government of Nigeria (FGN) has signalled a sharp shift toward domestic borrowing. Official offer documents show that the FGN plans to raise up to ₦900bn at its January 2026 bond auction – double the ₦450bn proposed a year earlier.
The Debt Management Office (DMO) will reopen three Federal Government of Nigeria (FGN) bonds at this auction: ₦300bn of a 7-year bond (due Feb 2031 at 18.50% coupon), ₦400bn of a 10-year bond (Feb 2034 at 19.00%), and ₦200bn of a 10-year bond (Jan 2035 at 22.60%).
These previously issued securities carry fixed coupons; successful bidders will pay a price based on the yield that clears each lot.
All bonds are priced at ₦1,000 per unit (minimum subscription ₦50.001m) . Interest is paid semi-annually, with principal repaid at maturity.
This sharp expansion in bond issuance reflects mounting fiscal pressures. In the first half of 2025 the government funded a ₦5.70tn budget deficit almost entirely through domestic borrowing (raising ₦6.10tn).
Analysts warn that such heavy use of bond sales risks crowding out private credit as banks absorb more government paper.
The cost of servicing this debt is already steep: Nigeria spent about ₦4.44tn on interest and principal payments in Q2 2025 alone. In short, the FGN’s funding gap forces reliance on expensive borrowing while still straining the financial system.
Nigeria’s total public debt has climbed rapidly. By end-June 2025 the debt stock reached roughly ₦152.4tn (about US$100bn). This comprised roughly ₦80.6tn in domestic debt and ₦71.8tn in external debt (June 2025).
The domestic debt is mostly in FGN bonds (₦60.65tn as of June 2025 ) plus treasury bills and other instruments. Much of the debt rise traces to the Tinubu administration’s reforms (subsidy removal, foreign exchange unification, etc.), which initially drove up costs before easing inflation.
Indeed, inflation has fallen sharply (from 33.18% in Nov 2024 to 14.45% in Nov 2025) as volatility subsided.
Notably, at Davos Finance Minister Edun noted Nigeria’s debt-to-GDP ratio is only about 36.1% (below many peers), stressing that much of the past debt surge reflected accounting and currency adjustments rather than fresh spending.
The reforms are designed to stabilize the economy and support growth, but revenues have yet to catch up to expenditure needs.
Auction Details and Market Context
The January 2026 auction will take place on 26 January (settlement 28 January) via the DMO. Investors will bid for the reopened bonds as noted above.
Notably, ten-year (and longer) bonds dominate the offering – ₦600bn of the ₦900bn total (two-thirds) – compared to just ₦200bn of ten-year paper in the January 2025 auction.
This heavier weighting toward long maturities suggests an effort to extend the debt profile and ease near-term refinancing pressure.
The announced coupons remain unusually high – up to 22.60% – reflecting Nigeria’s tight monetary conditions (headline inflation still in the mid-teens and the central bank’s rate at 27% ).
Investors thus demand rich yields for protection against inflation and rate risks. “Market analysts say the high yields attached to the offer reflect current tight liquidity conditions and elevated interest rates, while providing investors an opportunity to lock in attractive long-term returns,” notes one report.
Despite the eye-catching rates, demand in Nigeria’s bond market has been strong. In 2025, total FGN bond allotments on the primary market exceeded about ₦5.12 trillion.
This turnout is helped by statutory incentives: FGN bonds are tax-exempt and count as liquid assets for banks, and they are listed on the Nigerian Exchange (NGX) and FMDQ exchanges.
In other words, institutional investors view these long-term instruments as safe, yield-bearing assets. A successful January auction would signal that the domestic market can still absorb large volumes, allowing the FG to cover its budget shortfalls internally.
A poor response, by contrast, could force the government to raise still more debt or pay even higher rates later.
Fiscal Context and Government Strategy
The expanded January borrowing comes amid mixed signals from policymakers. On one hand, the government has dramatically increased domestic funding.
On the other, Finance Minister Wale Edun has emphasised that Nigeria must boost revenues to reduce borrowing.
At Davos, Edun said: “The issue now is to focus on revenue, focus on domestic resource mobilisation. We’re hoping to rely less on borrowing”.
He added that while Nigeria could still tap international capital markets if needed, the priority is mobilising homegrown funds.
Indeed, recent tax reforms aim to lift revenue to roughly 18% of GDP (up from ~14% today), reflecting a push to finance more from tax receipts and cut deficit reliance on debt.
For now, however, these revenue initiatives are still ramping up, so bond sales remain necessary to plug the gap.
The 2025–26 budget framework explicitly envisages significant domestic borrowing even as it targets higher revenues.
Banks currently face tight liquidity (partly due to high cash reserve rules), so the debt managers must balance funding needs against the risk of crowding out lending.
If inflation keeps easing, the CBN hinted it may lower rates later in 2026, which could reduce debt costs in future. But until then, Nigeria is issuing relatively expensive local currency bonds to keep its budget afloat.
Outlook and Implications
The outcome of the January auction will send important signals. A strong subscription – especially for the long-dated bonds – would indicate that the domestic market has depth to meet government needs, potentially sparing Nigeria from costly external borrowing.
A tepid response or a need to accept yet higher coupons would increase fiscal stress. Investors and ratings agencies will watch closely whether yields must climb further to clear the books.
Analysts will also monitor debt-service projections: even if the debt/GDP ratio is moderate, servicing a larger stock at these yields will consume more revenue.
Encouragingly, the IMF has raised Nigeria’s growth forecast to about 4.4% for 2026, which would help bolster revenues. But if oil receipts falter or tax collection disappoints, the government may have to lean on bond sales again in 2026.
As one economic analysis warns, relying heavily on domestic borrowing is a double-edged sword – it taps local savings to fund development, but risks crowding out private lending and driving up interest rates .
In summary, the decision to double the January bond offer to ₦900bn highlights Nigeria’s urgent need for funding and a preference for extending maturities.
It underscores a balancing act in current policy: on one side, aggressive fiscal reform and revenue mobilisation to stabilize public finances, and on the other, the immediate reality of financing a large deficit.
The coming bond sale and subsequent budget reports will reveal how successfully Nigeria can manage those tensions in practice.
