Nigeria’s public finances are confronting a troubling contradiction: government revenue is rising, yet the cost of servicing debt is consuming more money than the Federal Government collects. The result is a fiscal squeeze that threatens infrastructure development, public services and the country’s ability to translate economic reforms into better living conditions for its citizens.
According to the World Bank’s October 2026 Nigeria Development Update, titled Beyond the Federal Purse: How Higher Revenues Shaped State Priorities, the Federal Government spent ₦7.7 trillion on interest payments between January and June 2026, against total revenue of just ₦6.2 trillion. In other words, interest alone swallowed 124.2 per cent of federal revenue, leaving a gap of ₦1.5 trillion before the government could pay salaries, build roads, equip hospitals or finance other essential services.
These figures, reported by the media, are more than an alarming budget statistic. They expose a fundamental weakness in Nigeria’s public finances: the country is generating additional revenue, but the cost of its accumulated debt is eroding the benefits.
The central question is no longer how much Nigeria owes. It is whether the government can bring the cost of borrowing under control while creating sufficient fiscal space to invest in economic growth and improve citizens’ welfare.
Revenue is rising, but the debt burden is rising too
There is an important positive development in the World Bank’s assessment. Federal Government revenue increased from ₦3.6 trillion in the first half of 2025 to ₦6.2 trillion in the corresponding period of 2026. That represents an increase of ₦2.6 trillion, or 72.2 per cent.
The World Bank attributed the improvement to recovering oil receipts, stronger corporate tax collections and higher independent revenues. Customs revenue remained broadly stable, while value-added tax collections were comparatively flat.
This is evidence that Nigeria’s revenue reforms and improved collections may be yielding results. However, the figures also demonstrate the limits of revenue growth when borrowing costs remain excessive.
Interest payments rose from ₦5.6 trillion in the first half of 2025 to ₦7.7 trillion in the first half of 2026, an increase of ₦2.1 trillion, or 37.5 per cent. The World Bank attributed the increase largely to elevated domestic borrowing costs.
There was a relative improvement in the interest-to-revenue ratio, which fell from approximately 155.6 per cent to 124.2 per cent. Yet this improvement should not obscure the underlying problem. Interest payments still exceeded revenue by a substantial margin.
Put differently, the government’s revenue performance improved faster than its interest burden grew, but not sufficiently to bring debt servicing within manageable limits.
A government that spends more on interest than it collects in revenue has very little room to manoeuvre. Every additional naira devoted to debt servicing is a naira that cannot be readily directed towards pressing development priorities.
The price Nigerians pay for expensive borrowing
The most worrying aspect of Nigeria’s debt burden is the opportunity cost: what the country sacrifices by directing an overwhelming share of its resources towards interest payments.
The World Bank’s figures reveal that total federal expenditure increased from ₦14.6 trillion in the first half of 2025 to ₦16.1 trillion in the same period of 2026, a rise of 10.3 per cent. Meanwhile, personnel expenditure rose from ₦3.7 trillion to ₦4.2 trillion, partly following wage adjustments.
Together, interest and personnel costs reached ₦11.9 trillion, accounting for approximately 73.9 per cent of total federal expenditure and nearly twice the government’s revenue.
This leaves a narrow financial corridor for capital investment, social protection, healthcare, education, security and other essential responsibilities.
The consequences are already visible in capital expenditure. According to the report, federal capital spending fell from one per cent of gross domestic product in the first half of 2025 to just 0.3 per cent in the corresponding period of 2026, equivalent to approximately ₦700 billion.
The Federal Government consequently spent about 11 times more on interest payments than on reported capital projects during the six-month period.
This is an extraordinary imbalance for a country facing substantial infrastructure deficits, unreliable electricity supply, inadequate healthcare facilities, poor transport networks and widespread unemployment.
The danger extends beyond the immediate budget. Public investment in roads, railways, power infrastructure and irrigation can reduce the cost of doing business, improve productivity and stimulate private investment. When these investments are postponed to accommodate debt obligations, economic growth may suffer, weakening the very revenue base needed to service the debt.
Nigeria therefore risks entering a vicious cycle: expensive borrowing crowds out productive investment, weak investment constrains economic growth, and inadequate growth makes the debt burden harder to manage.
A smaller deficit does not necessarily mean a healthier economy
The World Bank reported that the federal fiscal deficit narrowed from ₦11 trillion, equivalent to five per cent of GDP, in the first half of 2025 to ₦9.9 trillion, or four per cent of GDP, in the first half of 2026.
At first glance, this appears encouraging. However, the institution cautioned that the improvement was partly driven by subdued capital expenditure rather than a substantial reduction in recurrent obligations.
This distinction matters enormously.
A government can reduce its deficit by improving revenue collection, eliminating waste and controlling expenditure. Such measures strengthen public finances. But it can also reduce its deficit by postponing infrastructure projects and cutting development spending. That may improve the immediate fiscal position while worsening the country’s long-term economic prospects.
The World Bank warned that the fiscal improvement should be interpreted cautiously because of low reported capital spending. It also anticipated additional pressure from increased capital execution later in the year, recurrent expenditure and pre-election spending.
The challenge, therefore, is not merely to reduce the deficit. It is to reduce it without undermining the investments required for sustainable development.
Domestic borrowing is at the heart of the problem
Nigeria’s debt profile offers another explanation for the growing interest burden.
The World Bank estimated the country’s public debt stock at approximately ₦177 trillion in 2025, equivalent to 40 per cent of GDP, compared with ₦67 trillion, or 27.6 per cent of GDP, in 2021.
The increase reflects several factors, including exchange-rate valuation effects and the recognition of previously accumulated liabilities, among them securitised Ways and Means advances.
These figures require careful interpretation. A higher naira-denominated debt stock does not necessarily mean that all the increase represents fresh cash borrowing. Exchange-rate movements and the formal recognition of existing obligations can also increase the recorded debt stock.
Nevertheless, the composition of the debt is particularly significant. Domestic debt accounted for 57.9 per cent of Nigeria’s debt stock but generated 72.6 per cent of interest payments in 2025.
This disproportionate interest burden reflects the relatively high cost of domestic borrowing.
When the government borrows heavily at elevated interest rates, it must devote increasing amounts of future revenue to servicing those obligations. Frequent refinancing can compound the problem, especially when maturing debt must be replaced with new borrowing at similarly high rates.
Heavy government borrowing may also compete with businesses for available domestic credit. If banks and other investors find government securities more attractive than lending to businesses, private investment can face higher financing costs or reduced access to credit.
The consequences could include slower business expansion, fewer jobs and weaker productive capacity.
However, domestic borrowing should not simply be abandoned. It can support economic development when used prudently. The objective should be to reduce the cost of borrowing, improve the productive use of borrowed funds and manage refinancing risks.
The way forward: five priorities
Nigeria cannot resolve this problem through revenue mobilisation alone. It needs a coordinated strategy that addresses the cost of debt, the quality of expenditure and the productivity of the economy.
First, reduce dependence on expensive borrowing.
The government should strengthen its debt-management strategy by prioritising concessional financing where appropriate, extending debt maturities and reducing refinancing risks, as recommended by the World Bank.
Longer maturities can ease immediate repayment pressures, although their benefits depend on the interest rates and other terms secured. Concessional loans should also be directed towards projects with clear economic and social returns rather than used to sustain recurrent expenditure.
The government must equally improve transparency around borrowing decisions and demonstrate how new loans contribute to measurable development outcomes.
Second, broaden the revenue base beyond oil.
The increase in federal revenue is welcome, but the relative stagnation of VAT collections and stable customs receipts indicate that revenue performance remains uneven.
Nigeria needs a more productive and diversified economy capable of generating sustainable tax revenue from manufacturing, agriculture, services and formal business activity.
Tax administration should become more efficient, leakages should be reduced, and compliance improved. However, expanding revenue must not mean indiscriminate increases in taxes on already pressured households and struggling businesses.
A broader tax base, fewer exemptions that lack economic justification and better collection systems would be more sustainable than repeatedly increasing the burden on compliant taxpayers.
Third, control recurrent expenditure without undermining essential services.
Personnel costs and interest payments consume nearly three-quarters of federal expenditure. While debt servicing cannot be reduced overnight, the government can review administrative overheads, eliminate duplicated functions, strengthen procurement controls and curb wasteful spending.
Public expenditure reviews should identify programmes that deliver limited value and redirect resources towards essential services.
This must not become an excuse for indiscriminate cuts to healthcare, education, security or the legitimate wages of public servants. Fiscal discipline should improve the quality of spending, not simply reduce its quantity.
Fourth, protect capital investment and improve budget execution.
The collapse in reported capital spending is a warning that budgetary stability cannot be achieved sustainably by starving development projects.
Government should prioritise projects according to economic returns, completion status and public need. Completing viable existing projects may deliver greater value than launching numerous new schemes that cannot be adequately funded.
The World Bank also identified overlapping budget cycles, weak expenditure planning and poor alignment between approved allocations and implementation capacity as persistent problems.
Addressing these weaknesses would help ensure that appropriated funds translate into completed roads, functioning hospitals, reliable public infrastructure and other tangible benefits.
Fifth, strengthen fiscal transparency and accountability.
Citizens need clear information about how much government borrows, the cost and maturity of its debt, the projects financed and the results achieved.
The National Assembly should exercise rigorous oversight of borrowing and expenditure, while independent audits should identify waste, uncompleted projects and unexplained cost overruns.
Governments must also resist election-driven spending commitments that cannot be sustained by available revenue. Fiscal credibility requires difficult decisions to be made consistently, rather than postponed until financial pressures become acute.
Nigeria must move beyond survival budgeting
The World Bank projects that Nigeria’s consolidated fiscal deficit will widen from 3.1 per cent of GDP in 2025 to 3.5 per cent in 2026, partly because of rising federal interest, personnel and pre-election spending.
This projection reinforces the urgency of reform. Higher revenue collection is important, but it cannot, on its own, rescue a fiscal system in which interest payments are growing rapidly and development expenditure is being squeezed.
The government must also recognise that debt sustainability is not measured solely by the ratio of public debt to GDP. The ability to service debt from actual revenue is equally important. A country may have a debt stock that appears manageable relative to the size of its economy but still struggle when its government collects too little revenue to meet its obligations.
Nigeria’s immediate task is to narrow the gap between revenue and interest payments while preserving the investment needed to expand future revenue.
That requires cheaper and better-managed borrowing, a broader productive economy, stronger budget discipline and an end to the practice of treating capital expenditure as the easiest item to sacrifice whenever public finances come under pressure.
Ultimately, the test of economic reform is not whether the government can announce higher revenues or report a smaller deficit. It is whether those improvements translate into more jobs, better infrastructure, improved public services and rising living standards.
When a government spends more on interest than it earns, the problem is no longer simply the size of its debt. It is the diminishing capacity to govern, invest and deliver development.
Nigeria cannot borrow its way indefinitely out of a revenue problem. It must build an economy that earns more, spend public money more intelligently and ensure that every new debt obligation strengthens rather than mortgages the country’s future.