The World Bank’s latest figures expose the pressure behind Nigeria’s fiscal recovery: interest payments exceeded federal revenue by N1.5tn in six months, while reported capital spending fell to a fraction of the interest bill.
Atlantic Post | Business & Economy | 12 October 2026
The Federal Government spent N7.7tn servicing debt interest in the first half of 2026, against revenue of N6.2tn. With reported capital expenditure falling to just N700bn, the figures raise difficult questions about whether Nigeria’s improving finances are translating into development.
Nigeria’s revenue is rising, but the cost of servicing its debt is consuming more money than the Federal Government collects, while spending on reported capital projects has plunged.
The Federal Government paid N7.7tn in interest on its debt between January and June 2026, equivalent to 124.2 per cent of its N6.2tn revenue, according to the World Bank’s October 2026 Nigeria Development Update.
The interest bill exceeded the government’s entire revenue for the six-month period by N1.5tn. Put another way, every N100 the Federal Government collected was matched by approximately N124 in interest obligations.
The figures expose a central weakness in Nigeria’s fiscal recovery. Although revenue collections have improved substantially, the government is still struggling to convert those gains into sufficient resources for infrastructure and other development priorities.
The World Bank’s report, Beyond the Federal Purse: How Higher Revenues Shaped State Priorities, identifies elevated domestic borrowing costs and heavy recurrent obligations as major pressures on the Federal Government’s finances.
The more troubling detail is what happened to capital expenditure during the same period. While interest payments reached N7.7tn, reported federal capital spending fell to approximately N700bn, meaning the government spent about 11 times more on interest than on reported capital projects.
Revenue is growing, but the debt burden remains
The Federal Government’s revenue performance improved considerably in the first half of 2026.
Collections rose from N3.6tn during the corresponding period of 2025 to N6.2tn in 2026, an increase of N2.6tn, or approximately 72.2 per cent.
The World Bank attributed the growth to stronger oil receipts, improved corporate tax collections and higher independent revenues. Customs revenue remained broadly stable, while value-added tax collections were comparatively flat.
The institution stated:
“Federal revenues rose to about 2.5 per cent of GDP (N6.2tn), from 1.6 per cent of GDP (N3.6tn) a year earlier, supported by a recovery in oil receipts, stronger corporate tax collections, and higher independent revenues, while customs revenues held stable and VAT collections stayed comparatively flat.”
That improvement matters. Stronger revenue gives the government more capacity to finance public services, reduce its dependence on borrowing and meet existing obligations.
Yet the composition of federal spending reveals why rising collections alone cannot guarantee fiscal relief.
Interest payments increased from N5.6tn in the first half of 2025 to N7.7tn a year later, a rise of N2.1tn, or 37.5 per cent.
The World Bank explained:
“Interest payments increased to 3.1 per cent of GDP (N7.7tn) from 2.5 per cent (N5.6tn) amid high domestic borrowing costs.”
There is an important distinction between the improving ratio and the rising bill.
Interest payments absorbed approximately 155.6 per cent of federal revenue in the first half of 2025. By the corresponding period of 2026, the proportion had fallen to 124.2 per cent.
That is an improvement of about 31.4 percentage points. But it does not mean the interest burden has fallen in naira terms. Instead, revenue grew faster than interest payments, reducing the ratio even as the actual cost of servicing debt continued to climb.
Nigeria has improved its capacity to generate revenue without yet escaping the pressure of its existing financial commitments.
N700bn for projects, N7.7tn for interest
The contrast between debt interest and capital expenditure provides one of the clearest indications of the pressure on federal development spending.
Reported capital expenditure fell from approximately 1 per cent of gross domestic product in the first half of 2025 to 0.3 per cent in the corresponding period of 2026, equivalent to about N700bn.
Against that figure, the N7.7tn interest bill was approximately 11 times greater.
These figures do not establish that every delayed road, hospital or school project resulted from debt servicing. Nor do they prove that all allocated capital funds would otherwise have been spent effectively.
They do, however, reveal how little reported federal capital expenditure there was in comparison with the amount paid to creditors during the period.
Capital spending is important because it can create or improve assets that support economic activity over several years. Roads can reduce transport costs. Electricity infrastructure can improve business productivity. Investments in schools, hospitals and water systems can strengthen human capital and living standards.
Interest payments, by contrast, meet the cost of borrowing already undertaken. They may be unavoidable contractual obligations, but they do not automatically create new public infrastructure.
The issue, therefore, is not whether Nigeria should honour its debts. It is whether the country can manage those obligations without continually squeezing the investment needed to expand its productive capacity.
Why a smaller deficit may not mean a healthier budget
The Federal Government’s total expenditure rose from N14.6tn in the first half of 2025 to N16.1tn during the corresponding period of 2026, an increase of N1.5tn, or about 10.3 per cent.
As a share of GDP, however, expenditure edged down from 6.6 per cent to 6.5 per cent.
Personnel costs also increased, rising from N3.7tn to N4.2tn following wage adjustments.
Combined interest and personnel expenditure reached N11.9tn, accounting for approximately 73.9 per cent of total federal expenditure.
That leaves a substantial share of spending committed to salaries and debt interest before the government can meet its other obligations.
The fiscal deficit nevertheless narrowed from N11tn in the first half of 2025 to N9.9tn in the first half of 2026. Relative to GDP, it fell from 5 per cent to 4 per cent.
On the surface, that is welcome progress. But the World Bank warned against interpreting the improvement as evidence of a durable strengthening of public finances.
“The improved early-year fiscal outturn should be interpreted cautiously given the low reported federal capital spending.”
The warning goes to the heart of the fiscal debate.
A government can reduce its deficit by increasing revenue, cutting waste, lowering borrowing costs or improving the efficiency of spending. But a deficit can also narrow because less money is being spent on projects.
The implication is significant: a better fiscal balance does not necessarily mean citizens are receiving more public services or that the government is building the infrastructure required for long-term growth.
The World Bank also cautioned:
“Personnel and interest costs continue to absorb a large share of fiscal space, and a pickup in capital execution later in the year, alongside recurrent and pre-election spending, is expected to add to pressures.”
In other words, the first-half figures may not capture the full pressure facing the Treasury. If capital projects accelerate later in the year while personnel obligations and politically driven spending rise, the government’s financing requirements could increase.
The challenge is to fund legitimate development priorities without allowing recurrent commitments to overwhelm the budget.
N177tn debt stock raises further questions
The pressure cannot be understood solely through the first-half interest bill.
The World Bank estimated Nigeria’s public debt stock at approximately N177tn in 2025, equivalent to 40 per cent of GDP, compared with N67tn, or 27.6 per cent of GDP, in 2021.
That increase should not be interpreted as the result of new cash borrowing alone. The report attributed a significant part of the change to exchange-rate valuation effects and the recognition of accumulated liabilities, including securitised Ways and Means advances.
Nevertheless, the debt stock has important implications for future budgets because a larger stock of expensive borrowing can produce higher interest obligations and expose the government to refinancing risks.
The composition of the debt is particularly revealing.
Domestic debt accounted for 57.9 per cent of Nigeria’s debt stock but generated 72.6 per cent of interest payments in 2025.
The imbalance indicates that domestic borrowing carried a disproportionately large share of the interest burden, reflecting relatively high domestic financing costs.
Nigeria’s monetary environment provides part of the context. In September 2026, the Central Bank of Nigeria reset its Monetary Policy Rate at 23 per cent. Although the policy rate is not the same as the government’s borrowing rate, a high-rate environment can contribute to expensive financing conditions.
The concern is not simply how much the country owes. It is how much the government must pay to maintain that debt, when those payments fall due and how much productive spending remains after meeting them.
The World Bank recommended limiting expensive borrowing, prioritising concessional financing where appropriate and extending debt maturities to reduce refinancing risks.
Can Nigeria turn stronger revenue into development?
The World Bank’s assessment of Nigeria’s wider economic performance is not uniformly negative.
The institution reported that real GDP grew by 4.2 per cent in the first half of 2026, up from 3.9 per cent in the corresponding period of 2025. Growth was driven largely by services, alongside a stronger contribution from agriculture.
Higher oil prices also strengthened export earnings and supported fiscal revenue, although the gains were moderated by existing oil pre-commitments under forward sales and oil-backed financing arrangements.
Those developments offer opportunities. The fiscal challenge is making the gains durable enough to support development when commodity conditions change.
The World Bank projected that Nigeria’s consolidated fiscal deficit would widen from 3.1 per cent of GDP in 2025 to 3.5 per cent in 2026, partly because of rising federal interest, personnel and pre-election spending.
It also identified overlapping budget cycles, weak expenditure planning and poor alignment between approved allocations and implementation capacity as persistent weaknesses in fiscal management.
These problems suggest that revenue mobilisation alone will not be sufficient.
The Federal Government needs better control over the cost of borrowing, more credible expenditure plans and stronger implementation of approved capital budgets. It also needs to broaden sustainable non-oil revenues rather than depend too heavily on favourable oil prices.
Budget discipline must mean more than limiting spending. It must also mean prioritising projects with clear economic and social benefits, improving procurement and execution, and reporting transparently on what public money delivers.
The distinction is crucial. A capital allocation in a budget is not the same as a completed project. Equally, announcing higher revenue does not establish that households and businesses have benefited from improved public services.
The government’s task is to demonstrate that stronger collections can support better infrastructure, more reliable services and a more productive economy.
The real test is what remains after debt interest
Nigeria’s first-half fiscal figures contain both progress and a warning.
Federal revenue rose by more than 72 per cent year-on-year, and the reported deficit narrowed. Those are meaningful improvements.
But interest costs still exceeded total federal revenue, personnel and interest expenditure absorbed nearly three-quarters of federal spending, and reported capital expenditure dropped sharply.
The numbers do not, by themselves, establish that Nigeria is insolvent or that every borrowing decision was misguided. They do show that the government has limited room to manoeuvre when debt interest absorbs resources on this scale.
The question confronting fiscal policymakers is whether revenue growth can consistently outpace the cost of financing the state, allowing capital expenditure to recover without pushing deficits and borrowing higher.
The World Bank’s warning is that interest and personnel costs remain major constraints, while a later increase in capital execution and pre-election spending could add to pressure.
For Nigerians, the measure of fiscal recovery will not be a larger revenue figure alone. It will be whether the government can turn that revenue into visible improvements in transport, electricity, education, healthcare, employment opportunities and other essential services.
Until that happens, the uncomfortable arithmetic will remain: Nigeria collected N6.2tn in six months but paid N7.7tn in debt interest, with just N700bn recorded in federal capital spending.
The test of economic reform is not only how much the government earns. It is how much it can still invest in the country after paying for the past.
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