•Bias starving real sector of credit – MPC official
Nigeria may be heading for another rise in foreign debt, with estimates showing the country could borrow up to $10 billion by the end of the year, mostly through costly commercial loans.
This raises fresh concerns about its ability to repay the debt and keep the economy stable.
A member of the Monetary Policy Committee (MPC), Bandele Amoo, has already warned that the growing preference of banks for government securities is increasingly crowding out credit to the real sector, weakening financial intermediation and constraining economic growth.
In a document titled; Nigeria’s Fiscal Balancing Act: Domestic debt meets Eurobond by SBM Intelligence, it revealed that despite tight monetary conditions, the country’s borrowing appetite continues to rise, with central bank data showing that credit to the Federal Government jumped 75.6 percent year-on-year to N40.38 trillion in May.
While warning that the trend could crowd out private sector lending as banks favour safer government securities over business loans, the geopolitical, research and consulting based firm, said it had expected the government to moderate its borrowing appetite after its public debt climbed to a
record high of over N159 trillion in 2025, but instead, the opposite has unfolded this year.
The firm added that beyond the domestic market, the government is simultaneously activating multiple channels for foreign borrowing. “A proposed $5 billion bond swap transaction is nearing completion, following the securing of a $1 billion facility from Citibank UK to finance the modernisation of the Apapa and Tin Can Island ports. In addition, a $516 million loan for the Badagry-Sokoto Superhighway is also under consideration.
Based on the current pipeline of transactions, Nigeria appears to be on course to contract as much as $10 billion in new external debt in 2026 alone, with much of the borrowing expected to come at commercial rather than concessional rates”, SBM Intelligence said.
Amoo, in his personal statement at the latest MPC meeting, said the banking sector’s tilt toward risk-free government instruments reflects a structural imbalance that continues to limit the flow of credit to productive sectors of the economy.
“The skewed investment of banks in favour of government securities is crowding out intermediation to the real sector,” he noted, stressing that the trend poses a risk to Nigeria’s long-term growth prospects.
At the same time, Amoo cautioned that the Central Bank of Nigeria (CBN) must carefully navigate its monetary policy stance to sustain the current disinflation trajectory without undermining macroeconomic stability.
He observed that while inflationary pressures have shown signs of moderation, recent data indicate a persistence of underlying cost drivers, including global energy price volatility and domestic structural constraints, particularly in food supply.
Further easing at this stage could undermine recent gains, while additional tightening may unnecessarily constrain growth and credit expansion,” Amoo said, advocating for a hold on key policy parameters.
According to him, maintaining the current stance would allow policymakers to consolidate improvements in price and exchange rate stability while assessing evolving risks in both domestic and global environments.
Amoo also highlighted the role of excess liquidity, largely driven by fiscal operations, in sustaining inflationary and exchange rate pressures, underscoring the need for stronger coordination between monetary and fiscal authorities.
Despite the challenges, he expressed cautious optimism about the medium-term outlook, noting that inflation is expected to ease gradually, supported by improved exchange rate stability, favourable base effects, and ongoing policy reforms.
According to him, risks remain tilted to the upside. “These include potential shocks from geopolitical tensions, energy market disruptions, and persistent domestic supply-side bottlenecks”, Amoo said.
The MPC member further pointed to structural deficiencies in critical sectors as key impediments to disinflation. He cited the slow expansion of compressed natural gas (CNG) infrastructure, introduced in 2024, as a missed opportunity to lower transportation and production costs.
“Observed gaps in refuelling outlets, conversion centres, and compression hubs continue to impede broader adoption,” he said, calling for targeted government intervention to scale up infrastructure.
In addition, Amoo urged deeper reforms in the electricity value chain, including further liberalisation to attract private investment and increased adoption of renewable energy sources such as solar and wind.
He noted that improving energy access and pricing frameworks would help ease pressure on the national grid and enhance productivity across industries.
On the fiscal side, he emphasised the importance of strengthening agricultural output and social safety nets, noting that addressing food supply constraints remains critical to anchoring inflation expectations.
Overall, Amoo stressed that sustaining macroeconomic stability would require a coordinated policy approach aimed at addressing structural bottlenecks while avoiding premature or excessive monetary policy adjustments.
SOURCE: thesun.ng
