Fiscal Strain: FG Debt Servicing Exceeds Budget by ₦1.90tn, Consuming 67% of Retained Revenue

Nigeria’s fiscal vulnerabilities have intensified as the Federal Government’s actual debt-related expenditures significantly outpaced its budgetary projections.

Fresh data from the Budget Office of the Federation reveals a ₦1.90 trillion budget overrun on debt servicing during the first nine months of the 2025 fiscal year, underscoring a severe squeeze on the country’s available fiscal space.

According to the 2025 Third Quarter Budget Implementation Report, total debt-related obligations, encompassing domestic debt, foreign debt, and sinking fund allocations, surged to ₦12.63 trillion between January and September.

This represents a 17.65% deviation from the prorated budgetary provision of ₦10.74 trillion allocated for the period.

Key Debt Metrics (January – September 2025)

The primary driver of this fiscal expansion was core debt servicing, which recorded an excess expenditure of ₦2.07 trillion (a 19.8% overrun) against its initial ₦10.45 trillion allocation.

• Foreign Debt Servicing: Witnessed the sharpest upward pressure, climbing to ₦6.30 trillion against a projected ₦5.06 trillion allocation. This ₦1.24 trillion deviation highlights the persistent impact of currency depreciation on external dollar-denominated obligations.
• Domestic Debt Servicing: Totaled ₦6.23 trillion, exceeding its pro-rata provision of ₦5.39 trillion by ₦832.42 billion, driven by higher interest rates in the local fixed-income market.
• The Retained Revenue Metric: Debt servicing alone absorbed 2% of the Federal Government’s ₦18.63 trillion retained revenue. When factoring in the sinking fund, total debt payments consumed 67.8% of total revenue.

The Macro Implication:

For every ₦100 retained by the federal government during this nine-month window, approximately ₦67.80 went directly into servicing creditors, leaving just ₦32.20 to fund public sector salaries, ministerial overheads, statutory transfers, and capital development.

Revenue Shortfalls and the Crowding Out of Infrastructure

The debt service spike occurred alongside a substantial revenue underperformance. Aggregate federal revenues missed targets by 39.24%, bringing in just ₦18.63 trillion against a projected pro-rata target of ₦30.67 trillion.

The Budget Office pointed to consistent oil revenue deficits as the primary culprit, which overshadowed modest gains in non-oil tax collection.

This structural revenue deficit, combined with mandatory debt commitments, severely choked capital expenditure.

With actual capital spending plunging to ₦3.10 trillion against a target of ₦17.58 trillion, the data confirms that actual debt obligations outpaced infrastructure development by a ratio of more than four to one.

Strategic Outlook and Policy Response

To bridge the wider-than-expected fiscal deficit, the government relied heavily on alternative financing mechanisms. Total financing inflows reached ₦12.07 trillion, led by ₦7.08 trillion in domestic borrowing and ₦4.81 trillion in multilateral and bilateral project-tied loans.

Speaking on the structural strategy, Taiwo Oyedele, finance minister, indicated that the government plans to leverage shifting market windows to manage the profile of these obligations moving forward.

“We think that this timing is good for us to be able to maybe even refinance some of our expensive past debts, but also to raise more funding for our development at this critical time,” Oyedele noted in an interview with Bloomberg TV.

Independent economists and policy analysts warn that long-term fiscal sustainability will require aggressive domestic revenue mobilization, strategic asset optimization, and a heavier reliance on private sector capital for large-scale infrastructure projects to prevent debt service costs from completely neutralizing future economic growth.