Debt servicing in Nigeria outpaced capital expenditure by N3.9tn over the past two years, highlighting growing fiscal pressures on the federal budget, according to a media brief obtained by The PUNCH on Sunday from the Federal Ministry of Finance.

The brief also showed that the Federal Government spent N27.2tn servicing public debt between 2024 and 2025.

The document by the Special Adviser to the Minister of Finance and Coordinating Minister of the Economy on Media and Communications, Dr Ogho Okiti, explained that the rise in debt servicing costs over the two-year period was largely driven by macroeconomic adjustments, particularly the depreciation of the naira and higher domestic interest rates.

Data contained in the brief showed that the Federal Government spent N12.63tn on debt servicing in 2024, significantly above the N8.56tn provided in the budget for the year. In 2025, debt service payments rose further to N14.57tn, exceeding the N13.12tn budgeted for the year.

Combined, the figures indicate that the Federal Government spent about N27.2tn on debt obligations within the two-year period, reflecting the growing fiscal pressure from rising interest costs and exchange rate adjustments.

A year-on-year comparison showed that debt servicing increased by N1.94tn between 2024 and 2025, representing a 15.4 per cent increase. The data also revealed that the actual spending on debt servicing exceeded budget projections in both years.

In 2024, debt servicing overshot the budget by about N4.07tn, as actual payments rose to N12.63tn compared with the N8.56tn initially approved.

The overshoot moderated in 2025 but remained significant, with actual spending of N14.57tn exceeding the N13.12tn budget by N1.45tn.

Overall, debt servicing exceeded budget projections by about N5.52tn across the two years. According to the brief, the increase in debt servicing was largely driven by macroeconomic factors rather than new borrowing.

The document explained that exchange rate movements significantly increased the naira value of external debt obligations.

It stated, “External debt is denominated in foreign currency. When the naira depreciates, the naira cost of servicing the same dollar debt rises automatically. This is a valuation effect and not evidence of new borrowing.”

The brief also linked the rise in debt servicing costs to higher domestic interest rates following tighter monetary policy aimed at stabilising inflation and the exchange rate. It noted that interest rates rose as the Central Bank of Nigeria tightened monetary policy, which in turn increased the cost of servicing domestic debt instruments.

An analysis of Federal Government finances also showed that debt servicing absorbed a large portion of government revenue during the period under review. According to the document, the Federal Government’s aggregate revenue rose from N12.48tn in 2023 to N20.98tn in 2024, reflecting improved tax administration, stronger remittance discipline, and growth in non-oil revenue sources.

With debt servicing reaching N12.63tn in 2024, the government spent about 60 per cent of its revenue on debt obligations that year. By November 2025, Federal Government revenue had reached N22tn, while debt service payments stood at N14.57tn, indicating that about two-thirds of revenue was used to service debt.

This shows that the debt service-to-revenue ratio rose from about 60 per cent in 2024 to roughly 66 per cent by November 2025.

Despite the pressure from debt servicing, the government maintained relatively high capital spending during the period. Total capital expenditure stood at N11.59tn in 2024, with a performance rate of 84 per cent, while N11.7tn had been spent on capital projects as of November 2025, representing 76 per cent performance.

The data showed that in 2024, the N12.63tn spent on debt servicing exceeded capital expenditure by about N1.04tn. In 2025, the gap widened further, as debt servicing of N14.57tn exceeded capital spending of N11.7tn by about N2.87tn.

Across the two years, debt servicing exceeded capital expenditure by about N3.91tn. The ministry noted that the perception that capital projects were not being implemented was inaccurate, explaining that federal capital spending consists of both direct budget releases to ministries, departments and agencies and project-tied loans from development partners.

It explained that multilateral and project-tied loans are disbursed directly by development partners and are tied to specific infrastructure and social projects. “These projects proceed even when MDA cash releases are limited,” the document stated.

The brief also highlighted broader fiscal reforms undertaken by the Federal Government since 2023, particularly the decision to halt what it described as the illegal and excessive use of Ways and Means advances from the Central Bank of Nigeria.

According to the ministry, these overdrafts had accumulated to about N30tn and were previously not transparently reflected in the fiscal deficit framework. The document explained that the advances had now been securitised and formally recognised within the public debt framework, improving transparency in public finance reporting.

It stated that deficits are now financed through structured borrowing instruments subject to legislative oversight rather than monetary financing. The brief noted that the transition has tightened fiscal space in the short term but is intended to restore macroeconomic credibility and strengthen long-term fiscal sustainability.

The ministry also addressed concerns about Nigeria’s rising public debt stock, explaining that a significant portion of the increase in nominal debt figures reflects accounting adjustments and exchange rate movements rather than fresh borrowing.

It stated that about N30tn in Ways and Means advances had now been formally recognised within the debt framework, while exchange rate adjustments significantly increased the naira value of external debt. According to the document, about N70tn of the nominal increase in public debt is attributable to exchange rate valuation effects.

The ministry maintained that debt sustainability should be assessed using indicators such as the debt-to-GDP ratio, debt service-to-revenue ratio, fiscal deficit trajectory, and revenue growth trends, rather than focusing solely on the nominal size of public debt.

The brief also highlighted the impact of oil revenue shortfalls on the Federal Government’s finances. In 2025, projected oil and gas federation revenue was N37.4tn, but actual inflows amounted to about N7tn, representing 19 per cent performance.

According to the document, if the projections had been realised, the Federal Government would have received roughly N15tn more in revenue. It noted that oil revenues have a higher proportional allocation to the Federal Government compared with other revenue sources, meaning shortfalls affect the Federal Government more significantly than states and local governments.

The ministry concluded that Nigeria’s fiscal pressures reflect a transition from what it described as hidden deficits and monetary financing to a framework based on transparency and market-based financing. “The administration has chosen long-term sustainability over short-term illusion,” the document stated.

The PUNCH earlier reported that debt service and personnel costs swallowed more than the Federal Government’s total revenue for the first seven months of 2025, even as receipts fell sharply below target and capital projects suffered deep cuts.

The Programme Manager of the Sustainable Nigeria Programme at Heinrich Böll Stiftung, Mr Ikenna Ofoegbu, warned about the high cost of borrowing in the economy. According to him, revenue is being swallowed by debt payments.

“Our debt servicing is about 60 per cent to 70 per cent. It has come down from about 80 per cent to 90 per cent. So now we’re about 60 per cent to 70 per cent,” he said.

He criticised the lack of transparency. “Unfortunately, we’re not dealing with the kind of leaders that we can trust, whatever they say or their intentions. We cannot trust the system. We cannot trust our politicians,” he said. “I don’t know the last time we saw all these reports publicly.”

Ofoegbu added that capital spending was unclear. “Many of us may not know, but there’s no capital budget to begin with. I think the only person that seems to be working in my own eye view is Wike,” he said.

The Executive Director of Centre for Inclusive Social Development, Mr Folahan Johnson, said the human impact of debt should not be ignored. “The true cost of debts is the out-of-school child, the out-of-school girl,” he said. “The true cost of debts is that a woman who has to do business loses her life because of lack of access to basic maternal health care.”

In its Review of the Nigerian Economy in 2025 and Outlook for 2026, the Centre for the Promotion of Private Enterprise flagged the projected N15tn debt service bill for the 2026 financial year, saying that it would affect the growth anticipated for the year.

Nigeria’s rising debt-service bill is set to remain a major constraint on fiscal performance, its Chief Executive Officer, Dr Muda Yusuf, said in the review.

“Debt service, estimated at over N15tn in the 2026 appropriation (about 50 per cent of projected revenue), continues to constrain fiscal space,” said Yusuf, noting that the situation limits the government’s capacity to fund capital expenditure and deliver growth-enhancing projects.

In a recent analysis, Meristem Securities noted, “Public debt is expected to rise further, driven by higher domestic borrowings and increased external commitments, particularly given the wider 2026 budget deficit of N23.85tn (compared to N14.10tn in 2025). Debt service growth may moderate as stop rates trend lower following the February MPR cut.

“The DMO is also expected to leverage favourable external rates and improved investor confidence, while sustained exchange rate stability should help contain near-term external debt servicing pressures.” (PUNCH)

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