Debt Servicing Eclipses Infrastructure Spend by N3.9tn

A recent media brief from the Federal Ministry of Finance has revealed a sobering reality for Nigeria’s national budget: over the last two years, the cost of paying back debt has systematically starved capital projects of funding. Between 2024 and 2025, the Federal Government spent ₦27.2tn on debt servicing, outstripping capital expenditure by ₦3.9tn.

While the government highlights that this shift is due to “long-term sustainability over short-term illusion,” the data show a tightening fiscal chokehold. In 2024, debt servicing (₦12.63tn) exceeded capital spending by ₦1.04tn. By 2025, that gap nearly tripled to ₦2.87tn, as debt costs rose to ₦14.57tn against ₦11.7tn in capital performance.

The Drivers: Valuation Shocks and Interest Rates

According to Dr. Ogho Okiti, Special Adviser to the Minister of Finance, this 15.4% year-on-year increase in debt costs wasn’t primarily caused by a borrowing spree, but by two “valuation effects”:

• Currency Depreciation: Since external debt is dollar-denominated, the weakening of the Naira automatically inflated the cost of servicing the same amount of debt in local currency.

• Monetary Tightening: To combat inflation, the Central Bank of Nigeria (CBN) raised interest rates, which subsequently increased the yield, and therefore the cost of domestic debt instruments.

Revenue vs. Debt: The 66% Trap

The most alarming metric in the brief is the Debt Service-to-Revenue Ratio.

• In 2024, the government spent 60% of its ₦20.98tn revenue on debt.

• By November 2025, that figure climbed to 66%, meaning ₦2 out of every ₦3 earned by the federation went to creditors rather than classrooms or clinics.

The “Hidden” ₦30tn Adjustment

The Ministry also clarified the nominal surge in public debt figures. Approximately ₦30tn of the current debt stock stems from the securitization of “Ways and Means” advances, essentially overdrafts from the CBN that were previously kept off the main books. By moving these into the formal debt framework, the government claims it is restoring “macroeconomic credibility,” though it significantly limits immediate fiscal space.

Looking Ahead to 2026

The outlook for the current year remains challenging. Dr. Muda Yusuf of the Centre for the Promotion of Private Enterprise (CPPE) flagged a projected ₦15tn debt service bill for 2026. With the 2026 budget deficit widening to ₦23.85tn, analysts at Meristem Securities expect public debt to rise further, though they hope the recent February MPR cut might eventually moderate domestic interest costs.