•Represents 7.4% YoY increase from Q1’25 •Analysts cite revenue gaps, fiscal indiscipline •Urge FG to cut waste, boost revenue •Rising debt crippling ability to fund infrastructure – World Bank“
By Babajide Komolafe, Economy Editor & Peter Egwuatu, Assistant Business Editor
At the backdrop of rising public debt pressure and concerns over the impact on the economy, the Federal Government (FG) increased its domestic borrowing by N8.1 trillion in the first quarter of 2026 (Q1’26), showing a 7.4 per cent rise from N7.5 trillion in the same period of 2025.
This upward trend, according to analysts, shows revenue gaps and spending indiscipline, urging the government to double down on revenue collection, cut waste and curb corruption.
Meanwhile, the World Bank has warned that the rising amount of money the Federal Government is spending to service debt is reducing its ability to fund critical infrastructure, citing the sharp decline in capital spending to 1.0 percent of GDP from 1.3 percent of GDP in 2024.
Domestic borrowing in Q1’26
Data obtained by Financial Vanguard from the Central Bank of Nigeria, CBN, and the Debt Management Office, DMO, shows that the 7.4 per cent, year-on-year, YoY, increase in FG’s domestic borrowing in Q1’26 was driven by 63 per cent and 24 per cent YoY increase in borrowing through FGN Bonds and FGN Savings Bonds, respectively, which offset 12 per cent decline in borrowing through Treasury Bills.
FG borrowed N4.86 trillion through Treasury Bills in Q1’26, representing a 12 per cent YoY decline from N5.54 trillion in Q1’25.
However, borrowing from the monthly FGN Bond auctions rose by 63 per cent YoY to N3.182 trillion in Q1 ’26 from N1.953 trillion in Q1’25.
Similarly, borrowing through the FGN Savings Bond rose by 24 per cent YoY to N16 billion in Q1’26 from N13 billion in Q1’25.
Borrowing overshoots target
Under the Appropriation Act 2026, the Federal Government plans to borrow N29.2 trillion, to fund the gap between the revenue of N68.32 trillion and expenditure of N36.87 trillion. This indicates a quarterly borrowing target of 7.3 trillion, including external debt.
However, given the N8.1 trillion borrowed from domestic investors in Q1’26, and the $6 billion new external loans approved by the National Assembly two weeks ago, the Federal Government might again exceed its annual borrowing target in 2026.
The above trend also indicates further increases in Nigeria’s debt stock which according to the DMO, stood at N153.29 trillion at end of Q3 ’25, representing 5.9 per cent YoY increase from N144.67 trillion at end of 2024.Given this development and expected increase in total debt, the Federal Government will spend more on debt services in coming years, and likely worsening of the debt service-to revenue ratio, a key debt sustainability indicator.
Debt service undermining infrastructure spending Consequently, the World Bank has said the nation’s massive debt-service burden was systematically crippling the nation’s ability to fund critical infrastructure, effectively reducing capital investment to a “primary adjustment margin” in the federal budget.In its latest Nigeria Development Update (NDU) for April 2026, released last week, the World bank disclosed that while the debt-to-GDP ratio appears moderate, the cost of servicing that debt is suffocating.”Although Nigeria’s debt-to-GDP ratio remains low by international standards, the main source of vulnerability is the high debt service-to-revenue ratio, which is estimated to have stood at 49.5 percent in 2025,” the Bank stated.This fiscal “squeeze” has directly impacted the Federal Government’s (FGN) development goals. The report noted that: “With recurrent spending absorbing most of the available fiscal space, capital spending declined from 1.3 percent of GDP in 2024 to 1.0 percent in 2025”.The bank further revealed a staggering failure in project execution: “Capital execution was particularly weak, with only 24 percent of the prorated 2025 capital budget of MDAs implemented, leaving a significant portion of approved investment unspent and limiting the growth impact of public spending”.Warning of the long-term consequences for Nigeria’s economic future, the lender emphasised “The ratio continues to crowd out pro-growth spending, particularly on infrastructure and human capital”. Even with projected improvements, the bank cautioned that the burden will remain high: “The debt service-to-revenue ratio… will remain elevated at about 41 percent by 2028, constraining fiscal flexibility and limiting space for priority development spending”.
Revenue gaps, structural constraints drive borrowingProviding insight into the factors behind the Q1 borrowing spike, Chief Investment Officer, VNL Capital Asset Management Company, Dr. Ifeanyi Ubah, reinforced concerns over persistent revenue weakness.He said: “The most fundamental reason is that government revenue continues to fall short of expectations. When actual receipts miss targets by a wide margin, borrowing becomes the default tool to keep the lights on and meet recurrent obligations. This is not a new problem; it is a pattern that has repeated itself year after year.”Ubah added that the expansion of the 2026 budget worsened the situation.”The budget was expanded significantly mid-cycle, widening the fiscal deficit beyond what was originally planned. A larger budget with the same weak revenue base simply means more borrowing,” he said.He further noted that a significant portion of new borrowing is being used to service existing obligations.”When debt service consumes such a large share of the budget, the government finds itself in a cycle where it borrows to repay what it already owes. The high interest rate environment only makes this more expensive,” he added.Similarly, Chief Executive Officer of HighCap Securities, Mr. David Adonri, attributed the development to the large fiscal deficit embedded in the 2026 budget.He said: “The huge deficit in the 2026 budget necessitates borrowing. For the government to overshoot its borrowing limit in Q1 may indicate revenue shortfalls or a deliberate decision to overtrade.”Also commenting, Head of Research at Quest Merchant Bank, Tunde Abidoye, pointed to underperformance in oil revenue.”The most likely factor is persistent revenue underperformance. Oil production averaged around 1.6 million barrels per day, below the budget benchmark of about 1.8mb/d,” he said.On his part, Chief Economist at United Capital Plc, Ayodele Akinwunmi, explained that government borrowing is not always evenly distributed across the year.”For instance, the government may borrow more during the dry season to accelerate road construction projects, while borrowing tends to be lower during the rainy season when construction activities slow down,” he noted.
Inflation, crowding-out risksOn the impact of rising borrowing on the economy, analysts warned of mixed outcomes for individuals and corporates.Adonri noted that “excessive domestic borrowing crowds out capital from the real sector and exacerbates inflation,” adding that rising credit to the government is already driving growth in money supply and destabilising asset markets.Abidoye, however, said the impact depends on how borrowed funds are utilised.”If the funds are well managed, it could have a positive impact on national infrastructure, and productivity. The key negative for Nigerians is a higher debt stock, which translates to a rise in debt service obligations – which ultimately have to be funded by taxpayers,” he said.In the same vein, Akinwunmi emphasised that borrowing is not inherently negative if channelled into productive investments.”Building up the nation’s stock of infrastructure is critical to accelerating economic growth and development. Borrowing, when directed toward well-chosen projects, can generate strong multiplier effects across the economy. Therefore, it is essential to continue encouraging the government to borrow responsibly to finance projects that deliver long-term benefits and stimulate sustainable growth in Nigeria.,” he added.
More borrowing likelyLooking ahead, analysts expressed concerns that the borrowing trend may persist in the near term.Adonri warned that fiscal indiscipline could sustain elevated borrowing levels.”There is already evidence of budget indiscipline. This trend is likely to continue, and the government may be entering a debt trap where new borrowing is required to service existing obligations,” he said.Abidoye also noted that borrowing could exceed projections if revenue performance remains weak.”We take guidance from the budget, but borrowing may overshoot if there are revenue shortfalls in Q2,” he said.However, Akinwunmi expressed a relatively optimistic outlook, citing improving oil prices and tax reforms.”With higher crude oil prices and ongoing tax reforms, government revenue is expected to improve, which should reduce reliance on borrowing,” he stated.Similarly, Ubah warned that the borrowing trend is unlikely to ease in the near term.
The borrowing trend is unlikely to ease in the coming quarters. With a wide fiscal deficit and revenue performance that continues to disappoint, the government has very little room to pull back.”The honest outlook is that total borrowing for the full year will likely exceed what was planned. The domestic bond market will remain the government’s primary financing tool, with issuance volumes staying elevated through Q4,” he said.Fiscal discipline, revenue mobilisation keyOn measures to curb the rising debt profile, analystsunanimously emphasised the need for stronger fiscal discipline and improved revenue generation.Afrinvest analysts called for tighter adherence to fiscal frameworks and greater policy credibility.Adonri advocated a fundamental shift in fiscal management.”The only way FGN can stop this financial recklessness is by rationalisation of the expenditure budget and pursuit of a disciplined balanced budget.
The current budget does not reinforce the strategic imperatives of an economy that needs critical transformation,” he said.Abidoye highlighted the role of tax reforms in boosting revenue.”The implementation of the Tax Act should enhance revenue and reduce borrowing pressures going forward,” he noted.Akinwunmi also stressed the importance of efficient allocation of public funds.”Through disciplined execution of projects and careful allocation of public funds to sectors that directly and indirectly benefit the economy, Nigeria can strengthen its earning capacity. Prioritising investments in infrastructure, productive industries, and social services will not only enhance immediate economic activity but also build long-term resilience and growth potential for the country. Doing this will enable the country generate revenue to repay both the principal loan and interest obligations,” he said.
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