Nigeria’s widening fiscal pressures are forcing the Federal Government to deepen its reliance on domestic borrowing, with its domestic debt stock rising to N82.9 trillion at the end of the first quarter of 2026, heightening concerns over the cost and sustainability of deficit financing.
Latest public debt data show that FGN domestic debt increased by 3.0 per cent quarter-on-quarter and 10.7 per cent year-on-year, accounting for 94.8 per cent of Nigeria’s total domestic debt of N87.4 trillion. States and the Federal Capital Territory accounted for the remaining N4.5 trillion.
The increase comes as the 2026 fiscal deficit is projected at N31.5 trillion, equivalent to 6.4 per cent of GDP, compared with N13.1 trillion, or 3.0 per cent of GDP, in 2025. The widening gap between government expenditure and revenues means borrowing is likely to remain a major source of budget financing.
For the Debt Management Office (DMO), the challenge is to raise sufficient funds without pushing domestic interest rates higher or crowding private-sector borrowers out of the financial system.
On a standardised basis, FGN domestic debt represents about 19.2 per cent of 2025 GDP. Based on projected 2026 economic growth, however, the ratio falls to about 16.1 per cent. While this offers some comfort, the pace of accumulation remains significant because domestic borrowing generally carries higher servicing costs than concessional external financing.
Treasury Bills were a major driver of the quarterly increase. Nigerian Treasury Bill obligations rose by N2.7 trillion, or 19.6 per cent quarter-on-quarter, to N16.6 trillion at the end of March. Year-on-year, NTB obligations surged by 30.5 per cent, highlighting the government’s increasing use of short-term instruments to meet immediate financing needs.
FGN bonds remained the largest component of the domestic debt portfolio, standing at N63.5 trillion and accounting for 76.6 per cent of FGN domestic debt. Although the bond stock was broadly unchanged quarter-on-quarter, it rose by 6.1 per cent year-on-year.
Other domestic obligations, including promissory notes, FGN Sukuk and savings bonds, amounted to almost N2.9 trillion.
The borrowing trend is also evident in the government’s bond auction programme. The DMO has raised about N5.6 trillion through bond auctions year-to-date, almost twice the N2.8 trillion raised during the comparable period of 2025. This excludes about N3 trillion in net Treasury Bill issuance, underscoring the scale of domestic financing already undertaken.
Despite the stronger pace of borrowing, the government still faces a sizeable financing gap relative to the N29.2 trillion domestic borrowing target contained in the 2026 budget.
If fourth-quarter bond issuance broadly mirrors the programme scheduled for the third quarter, full-year bond sales could reach about N13.9 trillion, substantially below the budgeted domestic borrowing target. However, the gap does not necessarily mean the government will miss its overall financing requirement, as alternative domestic funding channels could supplement conventional bond and Treasury Bill auctions.
Nevertheless, the financing pressure has broader implications for the economy. Increased government borrowing could keep yields elevated and make credit more expensive for businesses and households. Banks and institutional investors may also continue to favour government securities because of their relatively low credit risk and attractive returns, potentially limiting funds available for private-sector lending.
This could undermine efforts to stimulate investment, expand productive capacity and create jobs.
Bamidele Ogunwusi
Bamidele Ogunwusi is a financial journalist with a strong analytical mind on issues that surround the financial sector. A graduate of Obafemi Awolowo University, Ile-Ife has garnered experience both locally and internationally in finance reporting. He has received awards and certificates from notable organisations like: the Centre for Investigative Journalism, Lagos, Bloomberg and Press Association, UK.
SOURCE: Independent