Nigeria's expenditure on servicing its domestic debt surged to N3.14 trillion in the first quarter of 2026, marking a significant 20.3% increase compared to the same period in the previous year. This figure, released by the Debt Management Office (DMO), underscores the mounting fiscal pressure on the country as it grapples with a growing debt burden.
Breakdown of Domestic Debt Service Payments
According to the DMO's latest data, the N3.14 trillion spent on domestic debt servicing in Q1 2026 represents a substantial rise from the N2.61 trillion recorded in Q1 2025. The increase highlights the escalating cost of borrowing for the federal government, driven by high interest rates and an expanding debt portfolio.
The DMO report details that the bulk of the expenditure went towards interest payments on treasury bills and bonds, which constitute the majority of Nigeria's domestic debt. This development raises concerns about the sustainability of the country's fiscal position, as a larger share of revenue is being diverted to debt servicing rather than critical infrastructure and social development projects.
Implications for Nigeria's Fiscal Health
The rising debt service costs come at a time when Nigeria's revenue generation remains constrained, with oil production levels still below OPEC quotas and non-oil revenue struggling to meet targets. The federal government's budget deficit for 2026 is projected to widen, further increasing the need for borrowing and potentially exacerbating the debt service burden.
Economic analysts have warned that the trend is unsustainable in the long run. "Nigeria is spending an increasingly large portion of its budget on debt servicing, which leaves less room for investment in growth-enhancing sectors," said Dr. Ayo Teriba, an independent economic consultant. "Without significant improvements in revenue generation or a restructuring of the debt portfolio, the country risks a debt trap."
Government's Response and Future Outlook
In response to the growing debt burden, the federal government has announced plans to enhance revenue collection through tax reforms and to reduce reliance on borrowing by promoting public-private partnerships. The Ministry of Finance has also indicated that it is exploring options for debt refinancing to lower interest costs.
However, these measures are yet to yield tangible results, and the DMO's data for Q1 2026 indicates that the debt service burden will continue to weigh heavily on the national budget. As the government prepares the 2027 budget, policymakers will need to strike a delicate balance between meeting debt obligations and funding essential public services.
Context of Nigeria's Total Debt
As of March 2026, Nigeria's total public debt stock, including domestic and external debt, stood at approximately N121.67 trillion. The domestic debt component accounts for the largest share, with the federal government's domestic debt alone exceeding N70 trillion. The increasing debt service payments reflect both the growing stock and the high interest rates on new issuances.
The DMO has consistently emphasized the need for a diversified economy to boost revenue and reduce the debt-to-GDP ratio, which currently stands at around 38% – within the country's self-imposed limit but above the levels recommended for low-income countries by the IMF.
Expert Recommendations
Financial experts recommend that Nigeria prioritize capital expenditure that can stimulate economic growth, thereby expanding the tax base and improving debt sustainability. They also call for more rigorous public financial management and transparency in the use of borrowed funds.
"The government must ensure that borrowed funds are invested in projects that yield high economic returns," said Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise. "Otherwise, we will continue to see debt service consuming a disproportionate share of the budget."
The Q1 2026 debt service figures serve as a stark reminder of the fiscal challenges facing Nigeria. As the government navigates these turbulent economic waters, the decisions made in the coming months will be critical in determining the country's fiscal trajectory for years to come.
