Nigeria’s Debt Servicing Bill Outstrips Revenue by ₦1.5tn as Capital Spending Slumps

Nigeria’s debt burden continued to squeeze public finances in the first half of 2026, with the Federal Government spending ₦7.7tn on interest payments against total revenue of ₦6.2tn, according to the World Bank.

The figures mean that interest obligations exceeded government earnings by ₦1.5tn between January and June, highlighting the pressure debt servicing is placing on resources available for infrastructure and essential public services.

The findings are contained in the World Bank’s October 2026 Nigeria Development Update, titled Beyond the Federal Purse: How Higher Revenues Shaped State Priorities.

The report showed that interest payments rose by ₦2.1tn, or 37.5 per cent, from ₦5.6tn in the first half of 2025 to ₦7.7tn in the corresponding period of 2026, largely reflecting high domestic borrowing costs.

The World Bank stated, “Interest payments increased to 3.1 per cent of GDP (N7.7tn) from 2.5 per cent (N5.6tn) amid high domestic borrowing costs.”

Although the burden remained severe, the ratio of interest payments to revenue improved from approximately 155.6 per cent in the first half of 2025 to 124.2 per cent in the same period of 2026.

The 31.4 percentage-point reduction reflected stronger revenue collection, but earnings remained insufficient to cover interest costs alone.

Federal Government revenue increased by ₦2.6tn, or 72.2 per cent, from ₦3.6tn in the first half of 2025 to ₦6.2tn during the corresponding period of 2026.

The World Bank attributed the growth to improved oil receipts, stronger corporate tax collections and higher independent revenues, while customs revenue remained stable and value-added tax collections showed comparatively little movement.

The report stated, “Federal revenues rose to about 2.5 per cent of GDP (N6.2tn), from 1.6 per cent of GDP (N3.6tn) a year earlier, supported by a recovery in oil receipts, stronger corporate tax collections, and higher independent revenues, while customs revenues held stable and VAT collections stayed comparatively flat.”

However, the increase in revenue was accompanied by higher government spending. Total federal expenditure rose by ₦1.5tn, or 10.3 per cent, from ₦14.6tn in the first half of 2025 to ₦16.1tn in the first half of 2026.

Personnel costs also climbed from ₦3.7tn to ₦4.2tn following wage adjustments, adding to the pressure from debt servicing.

Capital projects bear the brunt

While recurrent obligations continued to rise, reported capital expenditure fell sharply, raising questions about the government’s capacity to sustain public investment amid mounting financial commitments.

The World Bank’s figures showed that capital spending declined from one per cent of gross domestic product in the first half of 2025 to 0.3 per cent in the first half of 2026, equivalent to about ₦700bn.

Based on the reported figures, the Federal Government spent roughly 11 times more on interest payments than on capital projects during the six-month period.

Interest and personnel expenditure combined reached ₦11.9tn, accounting for approximately 73.9 per cent of total federal spending and nearly twice the government’s revenue.

Despite these pressures, the country’s fiscal deficit improved. The Federal Government’s deficit narrowed from ₦11tn, equivalent to five per cent of GDP, in the first half of 2025 to ₦9.9tn, or four per cent of GDP, in the same period of 2026.

The World Bank, however, warned against interpreting the improvement as evidence of a broad-based strengthening of public finances, noting that weak capital spending contributed to the outcome.

“The improved early-year fiscal outturn should be interpreted cautiously given the low reported federal capital spending,” the report stated.

It added, “Personnel and interest costs continue to absorb a large share of fiscal space, and a pickup in capital execution later in the year, alongside recurrent and pre-election spending, is expected to add to pressures.”

The institution also highlighted structural weaknesses in budget implementation, including overlapping budget cycles, inadequate expenditure planning and poor alignment between approved allocations and the government’s capacity to execute projects.

Domestic borrowing drives debt costs

Nigeria’s overall debt stock stood at approximately ₦177tn in 2025, representing 40 per cent of GDP, compared with ₦67tn, or 27.6 per cent of GDP, in 2021, according to the report.

The World Bank explained that the increase reflected exchange-rate valuation effects and the recognition of previously accumulated liabilities, including securitised Ways and Means advances.

Domestic debt accounted for 57.9 per cent of the country’s debt stock but generated 72.6 per cent of total interest payments in 2025, underscoring the relatively high cost of borrowing within the domestic market.

To ease the burden, the institution recommended limiting expensive borrowing, increasing access to concessional financing and extending debt maturities to reduce refinancing risks.

It also projected that Nigeria’s consolidated fiscal deficit would widen from 3.1 per cent of GDP in 2025 to 3.5 per cent in 2026, partly because of higher federal interest and personnel costs, alongside additional pre-election expenditure.

The World Bank urged the government to strengthen revenue mobilisation, improve the credibility of budget estimates and implementation, and maintain fiscal discipline.

Without sustained improvements in revenue generation and expenditure management, the report warned, debt obligations could continue to restrict the funds available for infrastructure, public services and other development priorities.