N166.8trn Debt: Government Borrowing Squeezing Business Credit

Nigeria’s public debt has nearly doubled in naira terms in three years, while commercial banks have sharply increased their holdings of government securities, raising questions about how much of the financial system’s growing pool of funds is reaching businesses seeking credit.

A review of data covering June 2023 to June 2026 shows that Nigeria’s total public debt rose from N87.38 trillion to N166.79 trillion, an increase of N79.41 trillion, or 90.9 per cent.

In dollar terms, the debt stock rose by just 6.6 per cent, from $113.42 billion to $120.93 billion, highlighting the effect of exchange-rate movements on the naira value of Nigeria’s foreign-currency obligations.

Over the same period, while external debt increased from N33.25 trillion to N75.20 trillion in naira terms, domestic debt increased from N54.13 trillion in June 2023 to N91.59 trillion in June 2026, a 69.2 per cent rise.

The sharper increase in the naira value of external debt partly reflects the exchange rate, as the rate used to convert the external debt stock moved from N770.38 to the dollar in June 2023 to N1,379.18 by June 2026.

This means the N79.41 trillion increase in the naira debt stock should not be interpreted entirely as fresh borrowing.

Government borrowing dominates domestic market

However, the more relevant issue for businesses is the expansion of federal domestic borrowing.

FGN domestic debt increased from N48.31 trillion in June 2023 to N87 trillion in June 2026, an increase of N38.68 trillion, or 80.1 per cent. Its share of total domestic debt also increased from 89.3 per cent to 95 per cent.

By June 2026, FGN bonds accounted for N64.84 trillion, or 74.5 per cent, of the Federal Government’s domestic debt, while treasury bills accounted for another N19.48 trillion.

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FGN bonds include N41.47 trillion in naira bonds, N22.11 trillion in securitised Ways and Means advances and N1.27 trillion in domestic US-dollar bonds.

Pinnacle Daily reports that Ways and Means advances are short-term funds previously provided by the Central Bank of Nigeria (CBN) to the Federal Government to meet temporary financing gaps.

The N22.7 trillion accumulated before June 2023 was converted into longer-term debt and remains largely intact at N22.11 trillion.

This growing pool of government securities matters to businesses because banks and other financial institutions can invest in them rather than extend loans to private borrowers.

Banks put more money into government securities

A review of the financial statements of major banks in the period under consideration shows the same trend.

At UBA, government and other investment securities rose from about N4.60 trillion in 2023 to more than N14 trillion in 2025, while gross customer loans increased from N5.47 trillion to N7.58 trillion.

At GTCO, investment securities rose from N2.08 trillion to N8.68 trillion over the same period, compared with an increase in gross customer loans from N2.48 trillion to N3.13 trillion.

Zenith Bank’s government and other debt securities increased from about N5.08 trillion to more than N11.30 trillion, while customer loans grew from N7.06 trillion to N11.06 trillion.

The figures do not, by themselves, establish that government borrowing caused banks to reduce lending to businesses. But they show that government securities have become a much larger destination for bank funds alongside continued growth in customer lending.

The high-interest-rate environment provides part of the context, as the Monetary Policy Rate (MPR) rose from 18.5 per cent in June 2023 to 27.5 per cent by mid-2025 before easing to 26.5 per cent by June 2026. Higher interest rates generally increase the return available on government securities while also making business borrowing more expensive.

The cost of servicing government debt adds another dimension, as the Federal Government spent N2.14 trillion servicing domestic debt in the second quarter of 2026 alone, with N1.98 trillion going to interest and rental payments.

World Bank Country Director for Nigeria Matthew Verghis has warned that the central issue for Nigeria is increasingly how financial capital is allocated.

“If you are going to take away one piece of my intervention, it will be the word jobs. Sustained jobs come from firms that invest, spend and hire, and from a financial sector that finances them,” Verghis said.

He said domestic credit to the private sector was only about 13 per cent of GDP, while micro, small and medium-sized enterprises received about one per cent of available credit and agriculture about six per cent.

“This is where the jobs are. The core observation to me and to the World Bank is credit is bypassing the job creators,” Verghis said.

Kazeem Bello, a development economist, similarly argued that recapitalisation would matter only if stronger bank balance sheets translated into greater financing for productive sectors.

“The depth of the financial system is what creates capital, deploys capital and makes capital available for both the public and private sectors to access and utilise for economic transformation, infrastructure development and private sector expansion,” Bello said.

“The engine of economic growth and development is generally facilitated by the private sector, and the role of the financial system in creating the much-needed capital can never be underestimated. Unfortunately, we continue to ignore this basic principle,” he said.

For Nigerian businesses, therefore, the significance of the N166.79 trillion debt stock goes beyond the size of government’s obligations. It raises a broader question about whether Nigeria’s expanding financial resources are being channelled sufficiently into the businesses that need capital to invest, expand production and create jobs.

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