Nigeria’s National Assembly has approved a further ₦1.15 trillion (~US$784 million) in domestic borrowing to help finance a widening gap in the 2025 federal budget. The decision reflects the challenge facing the government in balancing its fiscal ambitions with economic realities, and signals that despite strong investor interest in external markets the domestic financing burden remains heavy.
According to the transaction details released by global news agency Reuters, the approval came on Wednesday in response to a request by President Bola Tinubu’s administration, which had cited a shortfall between the initially-proposed deficit of ₦12.95 trillion and the ₦14.10 trillion figure passed by lawmakers. The 2025 budget itself totals ₦59.99 trillion, meaning that this additional borrowing accounts for a significant portion of the fiscal gap.
A Significant Shift in Financing Strategy
This development marks a strategic pivot in how Nigeria is funding its budgetary commitments. While recent months have seen high-profile external borrowings including a US$2.35 billion Eurobond, the push to raise an additional large sum domestically highlights several trends. First, domestic financing remains a key component of the government’s funding mix. Second, the narrowing of the deficit between the executive and legislature has required correction. And third, the swift approval of the borrowing signals parliamentary support for the administration’s fiscal policy approach.
Implications for the Domestic Economy
From a macro-economic perspective, increased domestic borrowing brings both opportunity and risk. On the positive side, sourcing funds locally may reduce reliance on foreign exchange-denominated debt and the attendant currency-risk exposure. It also keeps borrowing within the domestic banking and capital market system, offering Nigerian financial institutions a role in the sovereign financing process.
However, the flip side is that higher domestic borrowing can crowd out private-sector credit, raise yields on government debt, and heighten inflationary pressures if not balanced by productive investment. With many Nigerian businesses already constrained by high borrowing costs, this dynamic could further squeeze private-sector growth unless managed carefully.
Structural Factors Underpinning the Gap
Several structural challenges are driving this need for additional financing:
- Revenue pressure: Nigeria’s non-oil revenue base remains weak relative to the budget size, meaning large deficits are persistent.
- Oil price and production risk: While Nigeria aims to raise oil output, volatility in global oil markets continues to pose downside risk to expected revenue flows.
- High interest costs: Government debt servicing costs are rising, reducing fiscal space for investment.
- Investment absorption constraints: Even when funds are secured, slow execution of infrastructure projects means the multiplier effects of spending may be muted.
What It Means for Stakeholders
For Investors:
The ability of Nigeria to access large internal borrowing indicates continuing market confidence, albeit with caution. Investors should monitor yield curves, bank lending behaviour and inflation trends all of which may be impacted by increased sovereign issuance.
For Business Leaders:
Private-sector firms may face tighter credit conditions if banks allocate more capital toward sovereign bonds. Businesses should assess their financing strategies, possibly shifting toward more equity-oriented or alternative funding structures.
For Policymakers:
The decision underscores the need to bolster revenue mobilisation, streamline expenditure, and ensure that borrowed funds are directed toward high-impact infrastructure and productive sectors.
Looking Ahead
Several metrics will be important in the coming months:
- Trends in government bond yields and their effect on banking sector lending.
- Movements in inflation and interest rates, as higher borrowing could signal inflation risk.
- Execution of budget-funded projects and how quickly finance is converted into output.
- Monitoring of external financing flows in comparison to domestic borrowings.
The approval of ₦1.15 trillion additional domestic borrowing is more than a fiscal footnote; it is a window into Nigeria’s evolving financing dynamics. The combination of external and internal funding sources, aligned with reform momentum and economic realities, shapes the immediate future of the economy. For Nigeria’s private sector and financial markets, the key question now is: can borrowed funds be translated into sustainable growth rather than simply servicing obligations?
