Nigeria allocated N4.14 trillion more to debt servicing than to capital infrastructure in 2025, according to the 2026-2028 Medium-Term Expenditure Framework (MTEF) document released by the Ministry of Budget and Economic Planning. The figures reveal a deepening fiscal strain as the government prioritises creditor payments over development projects.
Debt Service Outpaces Capital Spending by Wide Margin
Data from the MTEF shows that in 2025, the federal government spent N8.42 trillion on debt service, compared to N4.28 trillion on capital expenditure — a gap of N4.14 trillion. This disparity underscores the growing burden of public debt on the national budget. The debt service-to-revenue ratio stood at 73 percent in 2025, meaning for every N100 earned, N73 went to creditors.
According to the document, total public debt stock as of December 2025 was N121.67 trillion, up from N97.34 trillion in December 2024. The increase of N24.33 trillion was driven largely by new borrowings to finance budget deficits and currency depreciation effects on foreign-currency-denominated loans. The federal government's domestic debt accounted for N72.35 trillion, while external debt stood at $33.21 billion (equivalent to N49.32 trillion at the official exchange rate).
Revenue Growth Fails to Match Debt Obligations
Despite a 28 percent increase in federally-collected revenue to N29.5 trillion in 2025, the government's retained revenue — after statutory transfers to states and local governments — was only N11.5 trillion. Debt service alone consumed 73 percent of this retained revenue, leaving little room for infrastructure, health, education, and other capital projects.
“The high cost of debt service continues to constrain fiscal space for growth-enhancing expenditures,” the MTEF document stated. “Without significant improvement in revenue generation or debt restructuring, the trend will persist.” The document projects that debt service will rise to N9.1 trillion in 2026, further widening the gap with capital spending, which is estimated at N4.5 trillion.
Infrastructure Deficit Deepens Amid Borrowing
The capital expenditure allocation of N4.28 trillion in 2025 represents just 14.5 percent of total federal spending, well below the 30 percent threshold recommended by the World Bank for developing economies. Key sectors such as roads, power, water, and rail received only N1.2 trillion combined, according to the budget breakdown. The MTEF projects that infrastructure spending will remain below 15 percent of total expenditure through 2028.
Nigeria’s infrastructure deficit is estimated at $100 billion annually, according to the African Development Bank, but the government’s borrowing strategy has prioritised budget support over project-tied loans. The MTEF notes that 68 percent of new borrowings in 2025 were used to refinance maturing domestic debt and pay interest, rather than fund new capital projects.
Fiscal Deficit and Borrowing Projections
The fiscal deficit for 2025 was N13.8 trillion, equivalent to 5.2 percent of GDP, above the 3 percent threshold set by the Fiscal Responsibility Act. The government financed the deficit through a combination of domestic borrowing (N9.2 trillion), external loans ($1.8 billion), and drawdowns on multilateral and bilateral loans (N1.4 trillion). For 2026, the deficit is projected at N14.6 trillion, with debt service accounting for 38 percent of total expenditure.
The MTEF also warns that interest payments on domestic debt alone will reach N6.7 trillion in 2026, up from N5.9 trillion in 2025. The average interest rate on domestic debt instruments rose to 14.8 percent in 2025, reflecting tighter monetary policy by the Central Bank of Nigeria. The document projects that debt service costs will exceed N10 trillion by 2028 if current borrowing trends continue.
Implications for Economic Growth
Economists have warned that the persistent prioritisation of debt service over infrastructure could stifle long-term growth. The MTEF itself acknowledges that “capital expenditure has a multiplier effect on economic activity, and its underfunding undermines productivity and job creation.” The document projects GDP growth of 3.5 percent in 2026, down from 3.8 percent in 2025, partly due to the infrastructure deficit.
The government has outlined plans to increase non-oil revenue through tax reforms and digitalisation of collections, but the MTEF notes that achieving a debt service-to-revenue ratio below 50 percent will require annual revenue growth of at least 15 percent for the next five years. Without such improvement, the fiscal gap between debt service and infrastructure spending is expected to widen further, reaching N5.2 trillion by 2028.
