The Federal Government’s heavy reliance on domestic borrowing is raising concerns over access to credit for Nigerian businesses and households, as government borrowing from domestic investors climbed to N24.7 trillion in the first eight months of 2026.
The figure represents a 90.5 per cent increase from the N12.98 trillion borrowed during the corresponding period of 2025, according to data from the Debt Management Office and Central Bank of Nigeria.
The surge has coincided with a much slower expansion in private-sector credit, raising concerns that banks and other institutional investors could increasingly favour government securities over lending to businesses.
CBN data showed that credit to the Federal Government rose by 43 per cent year-on-year to N33.92 trillion in July 2026, from N23.69 trillion a year earlier.
By comparison, credit to the private sector increased by only 9.6 per cent, from N76.13 trillion in July 2025 to N83.43 trillion in July 2026.
This means government credit grew about 4.5 times faster than lending to the private sector during the period.
The pressure on businesses is being driven largely by the government’s increased issuance of Federal Government Bonds and Nigerian Treasury Bills, alongside FGN Savings Bonds.
Borrowing through FGN Bonds rose by 145 per cent to N7.78 trillion in the eight months to August 2026, compared with N3.18 trillion in the same period of 2025.
Treasury Bills accounted for N16.92 trillion, representing a 78.6 per cent increase from N9.47 trillion recorded in the corresponding period last year.
Borrowing through FGN Savings Bonds also increased by 22 per cent to N40.56 billion from N33.18 billion.
Financial experts said the development could worsen the financing challenges confronting businesses, particularly as government securities offer banks and institutional investors relatively attractive returns with lower perceived risk.
Chief Executive Officer of MDU Capital Ltd, Ayodeji Ebo, said the increased borrowing reflected the government’s larger financing requirements arising from debt servicing, recurrent expenditure, infrastructure, security and the persistent fiscal deficit.
He said the government could also be favouring the domestic market to reduce its exposure to foreign exchange risks.
However, Ebo cautioned against treating the entire increase in Treasury Bills issuance as fresh borrowing because some of the funds represent refinancing or rollover of maturing obligations.
On the impact on businesses, Ebo said the increased supply of government securities could encourage financial institutions to channel more funds into government debt instead of private-sector lending.
“For investors, the increased supply of government securities provides attractive risk-free investment opportunities and higher yields.
“However, it can crowd out the private sector because banks and institutional investors may prefer government securities to lending to businesses. This raises borrowing costs for companies and households, potentially slowing private investment, consumption and job creation,” he said.
Co-Founder of Comecio Partners, Nnamdi Nwizu, similarly said the borrowing spree had created winners and losers across the economy.
He said pension funds, banks and money market investors had benefited from the attractive yields on government securities, while businesses were facing the downside of reduced incentives for banks to lend.
“Investors, particularly pension funds, banks and money market funds, have benefited from high yields on government bonds and treasury bills, which also helps explain steady FPIs flow into local markets,” Nwizu said.
He added that businesses were bearing the cost because banks could obtain relatively safe and attractive returns by investing in government securities.
“They have less incentive to lend to the private sector, which keeps borrowing costs high for businesses,” he said.
Nwizu also warned that the rising cost of servicing government debt could ultimately limit funding available for critical sectors.
“The total money spent on interest payments was over N3 trillion in Q1 alone, which is money not available for infrastructure, healthcare or education, which ultimately affects ordinary Nigerians,” he said.
The growing dependence on domestic borrowing comes despite increased government revenue from various sources, including tax collection, customs and oil-related receipts.
Nwizu said additional revenues, including savings from fuel subsidy removal and higher oil prices, had not translated into reduced borrowing because government expenditure had expanded at a faster rate.
“Instead of using the extra revenue to borrow less, FG has expanded the overall budget and continued to lean heavily on domestic debt to fund it,” he said.
Head of Equity Research at Quest Merchant Bank, Tunde Abidoye, also linked the borrowing increase to expenditure growth outpacing revenue.
Abidoye said government spending amounted to N30.6 trillion between June 2023 and December 2025, against realised revenue of N20.4 trillion, leaving a financing gap of N10.2 trillion.
He, however, noted that stronger revenue mobilisation, supported by higher crude oil prices and ongoing tax reforms, had improved the government’s fiscal position.
N24.7trn already represents 85% of target
The scale of the borrowing has also raised questions over whether the government will exceed its 2026 domestic borrowing target.
Under the 2026 budget, the Federal Government plans to spend N68.32 trillion while projecting revenue of N36.87 trillion, leaving a fiscal deficit of N31.45 trillion.
About N29.2 trillion of the deficit is expected to be financed through domestic and external borrowing, with other funding sources including multilateral and bilateral project-tied loans and privatisation proceeds.
The N24.7 trillion raised domestically between January and August represents about 84.7 per cent of the N29.2 trillion borrowing target.
At the average monthly borrowing pace of about N3.08 trillion recorded during the first eight months, the government could exceed its annual target if the trend continues through the remaining four months of 2026.
Ebo projected that domestic borrowing could end the year around N29 trillion if the government remains aligned with its target.
However, refinancing needs and possible revenue shortfalls could push gross domestic issuance to between N30 trillion and N33 trillion, he said.
Nwizu put the likely figure at about N30 trillion but warned that borrowing could rise to between N32 trillion and N34 trillion if government spending continues to exceed revenue projections.
“The base case would be for borrowing to finish around N30 trillion, but the risk remains tilted towards a higher figure if government spending continues to exceed revenue expectations,” he said.
The domestic borrowing target itself has already been revised upward from the original N17.9 trillion to approximately N29.2 trillion.
Debt service raises fresh concerns
Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, said the size of the 2026 budget was a major factor behind the government’s rising borrowing requirement.
“When you compare the size of this year’s budget with that of last year, there has been a significant increase. The budget this year is over N60 trillion,” Yusuf said.
He also pointed to exchange-rate movements, which he said had increased the cost of capital projects as well as the naira value of external obligations.
Yusuf warned that continued borrowing would further increase debt-servicing costs and leave the government with less money for other priorities.
“As the government borrows more, its debt-service cost also increases. When debt servicing increases, it reduces the government’s ability to spend on other things,” he said.
“Debt servicing takes priority; the government has to service its debt before it can undertake other expenditures.”
According to him, the rising debt burden was already contributing to funding difficulties for capital projects and other areas of budget implementation.
Experts seek alternatives to borrowing
Yusuf urged the government to reduce its dependence on borrowing by strengthening revenue generation and involving the private sector in projects that could be financed outside the public purse.
“If the government is able to generate more revenue, the need to borrow will be reduced. So, revenue reform is very important,” he said.
He also advocated greater use of public-private partnerships, arguing that government could transfer the financing and implementation of commercially viable projects to private investors.
“Public-private partnerships are also important. If there are projects the private sector can undertake, the government does not need to burden itself with financing them,” Yusuf said.
He further called for better commercialisation of government assets to increase returns and provide additional funding for public expenditure.
While economists acknowledged that borrowing could support infrastructure and other productive investments, they warned that the benefits would be undermined if rising debt-service obligations and competition for domestic funds continued to restrict private-sector access to affordable credit.
Chief Economist at United Capital Plc, Ayodele Akinwunmi, said the borrowing should also be assessed against the infrastructure being financed, noting that Nigeria had a substantial infrastructure deficit.
“Across the country, we have witnessed significant growth in infrastructure development, ranging from physical projects, such as roads and railways, to soft infrastructure, including education, healthcare and security,” Akinwunmi said.
He argued that investment in infrastructure remained necessary for economic competitiveness, job creation and inclusive growth.
The challenge, however, is balancing that investment with the need to prevent government borrowing from increasingly crowding out the businesses expected to drive private-sector growth.
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