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Nigeria Spends ₦7.7tn on Debt Interest as Borrowing Costs Outstrip Federal Revenue
Nigeria’s growing debt burden is placing increasing pressure on government finances, with interest payments consuming more money than the Federal Gove...
By Wavers News
Illustration of Nigerian Naira Notes Representing the Country’s Rising Debt Interest Payments.
Between January and June, the Federal Government spent approximately ₦7.7tn servicing interest on its debts, while its total revenue stood at ₦6.2tn. The difference left interest obligations ₦1.5tn above revenue collected during the period, highlighting the financial challenges facing the country despite an improvement in revenue generation.
The figures are contained in the World Bank’s October 2026 Nigeria Development Update, which examines government revenue, expenditure and the financial pressures affecting public investment and service delivery.
The development raises questions about how much money remains available for infrastructure, healthcare, education and other public priorities when a substantial share of government resources is committed to debt-related obligations.
INTEREST PAYMENTS RISE DESPITE HIGHER REVENUE
The Federal Government’s interest expenditure increased significantly compared with the corresponding period in 2025.
Interest payments rose from ₦5.6tn in the first half of 2025 to ₦7.7tn during the same period in 2026, representing an increase of approximately ₦2.1tn, or 37.5 per cent.
The World Bank attributed the increase largely to high domestic borrowing costs, which have made servicing government debt more expensive.
Interest payments also increased as a proportion of Nigeria’s gross domestic product, rising from 2.5 per cent in the first half of 2025 to 3.1 per cent in the first half of 2026.
However, the relationship between interest payments and government revenue showed some improvement. Interest obligations represented approximately 155.6 per cent of revenue in the first half of 2025, compared with 124.2 per cent during the corresponding period of 2026.
This improvement reflects the stronger growth in revenue, although interest payments continued to exceed the amount collected by the Federal Government.
FEDERAL REVENUE INCREASES BY 72.2 PER CENT
Government revenue recorded a substantial increase during the period under review.
Federal revenue rose from ₦3.6tn in the first half of 2025 to ₦6.2tn in the first half of 2026, representing an increase of ₦2.6tn, or 72.2 per cent.
The improvement was supported by a recovery in oil receipts, stronger corporate tax collections and higher independent revenues. Customs revenue remained relatively stable, while value-added tax collections showed comparatively little movement.
The figures suggest that the government generated considerably more revenue than it did a year earlier. Nevertheless, the increase was not sufficient to cover interest payments and other expenditure commitments.
The situation illustrates the difference between generating more revenue and achieving a sustainable fiscal position. Even when collections improve, high borrowing costs and other government obligations can absorb much of the additional income.
GOVERNMENT EXPENDITURE CONTINUES TO GROW
Total Federal Government expenditure increased from ₦14.6tn in the first half of 2025 to ₦16.1tn in the first half of 2026.
The increase of ₦1.5tn represents growth of approximately 10.3 per cent over the period.
Personnel expenditure also rose, increasing from ₦3.7tn to ₦4.2tn following wage adjustments. These costs, alongside debt interest payments, accounted for a significant portion of the government’s spending.
Combined interest and personnel expenditure reached approximately ₦11.9tn, equivalent to 73.9 per cent of total federal expenditure during the six-month period.
That amount was also almost twice the government’s revenue of ₦6.2tn, leaving limited fiscal room for other responsibilities.
The figures highlight the competing demands on public finances as the government seeks to meet salary obligations, service existing debt and fund development priorities.
CAPITAL SPENDING FALLS SHARPLY
While recurrent expenditure and interest obligations increased, reported federal capital expenditure declined considerably.
Capital spending fell from approximately one per cent of GDP in the first half of 2025 to 0.3 per cent in the corresponding period of 2026, equivalent to about ₦700bn.
The reported capital expenditure was substantially lower than the ₦7.7tn spent on debt interest. In monetary terms, interest payments were approximately 11 times the reported capital expenditure during the period.
Capital expenditure is important because it covers government investment in infrastructure and other long-term assets, including roads, public facilities and development projects.
A sustained reduction in capital spending can limit the government's ability to expand infrastructure and address development needs. However, the figures for the first half of the year do not by themselves establish the final level of capital spending for the entire 2026 fiscal year.
The World Bank cautioned that the improvement in the government’s fiscal position should be interpreted carefully because of the low reported level of capital expenditure.
It also warned that increased capital project implementation later in the year, alongside recurrent and pre-election spending, could add further pressure to public finances.
FISCAL DEFICIT NARROWS, BUT CONCERNS REMAIN
Despite the increase in interest payments and total expenditure, the Federal Government’s fiscal deficit narrowed during the first half of 2026.
The deficit declined 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 corresponding period of 2026.
A fiscal deficit occurs when government expenditure exceeds its revenue, requiring the government to rely on borrowing or other financing arrangements to cover the shortfall.
Although the reduction represents an improvement, the World Bank cautioned that lower reported capital spending contributed to the outcome.
The institution also identified weaknesses in expenditure planning, overlapping budget cycles and poor alignment between approved allocations and implementation capacity as continuing challenges in public financial management.
These issues can complicate the execution of government budgets and make it more difficult to ensure that approved spending translates into completed projects and public services.
The World Bank 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 rising federal interest and personnel costs as well as pre-election spending pressures.
NIGERIA’S PUBLIC DEBT REACHES ABOUT ₦177TN
The pressure from interest payments comes against the backdrop of a significant increase in Nigeria’s public debt stock.
The World Bank estimated the country’s debt at approximately ₦177tn in 2025, equivalent to 40 per cent of GDP. In 2021, the debt stock stood at about ₦67tn, or 27.6 per cent of GDP.
The increase reflects several factors, including exchange-rate valuation effects and the recognition of previously accumulated liabilities. These included securitised Ways and Means advances, which are obligations associated with financing provided by the Central Bank of Nigeria to the Federal Government.
The composition of the debt also affects how much the government pays to service it.
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 imbalance reflects the relatively high cost of domestic borrowing compared with some external financing arrangements.
Although borrowing allows the government to finance spending beyond its immediate revenue, expensive loans and large interest obligations can reduce the funds available for other priorities.
WORLD BANK RECOMMENDS LOWER-COST BORROWING
To ease the pressure on public finances, the World Bank recommended limiting expensive borrowing, prioritising concessional financing and extending debt maturities to reduce refinancing risks.
Concessional financing generally offers more favourable terms than commercial borrowing, including lower interest rates or longer repayment periods. Such arrangements can help reduce the cost of financing development projects, although their availability depends on the terms offered by lenders and the country's eligibility.
Extending debt maturities can also reduce the pressure associated with having to repay large amounts within short periods. However, it does not eliminate the underlying obligation to repay the debt or the interest charged on it.
The broader challenge for Nigeria is to improve revenue collection while managing expenditure and the cost of existing obligations.
The first-half figures show that revenue growth has been substantial, but interest payments continue to absorb more than the government collects. Addressing that imbalance will be important to creating additional room for infrastructure investment, essential public services and other development priorities.