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.

According to a media brief from the Federal Ministry of Finance, the Federal Government spent a staggering N27.2 trillion on debt servicing between 2024 and 2025, surpassing capital expenditure by N3.9 trillion in the same period.

The data paints a grim picture of budget overruns and macroeconomic shocks:

• 2024: Debt servicing hit 63tn (N4.07tn above the budget), exceeding capital spending by N1.04tn.
• 2025: The gap widened significantly; debt servicing rose to 57tn, outpacing the N11.7tn spent on capital projects by N2.87tn.
• Revenue Absorption: By late 2025, debt servicing was swallowing roughly 66% (two-thirds) of total Federal Government revenue, up from 60% in 2024.

The Ministry of Finance attributed the surge not necessarily to new borrowing, but to painful valuation effects.

The massive depreciation of the Naira automatically spiked the cost of servicing dollar-denominated external debt. Simultaneously, the Central Bank’s aggressive monetary tightening to fight inflation pushed domestic interest rates higher, making internal debt significantly more expensive to manage.

A significant portion of the nominal debt jump involves the securitization of N30 trillion in Ways and Means advances.

Previously kept off the books, these Central Bank overdrafts have now been formally recognized in the public debt framework, a move the government describes as choosing long-term sustainability over short-term illusion.

While the government touts transparency and an 84% capital budget performance in 2024, the human cost remains the real concern.

With debt servicing now projected to hit N15 trillion in 2026, the fiscal space for education, healthcare, and digital infrastructure is shrinking.

As Dr. Muda Yusuf of the CPPE notes, this trajectory acts as a massive constraint on the government’s capacity to deliver growth-enhancing projects. For an economy desperately needing a deep tech and infrastructure revolution, being stuck in a loop of paying for past consumption rather than future production is a recipe for stagnation.

Despite a rise in aggregate revenue to N22tn by November 2025, a massive shortfall in oil revenue, actual inflows were just 19% of the N37.4tn projection, left the Federal Government bearing the brunt of the fiscal squeeze

The data from the Federation Account Allocation Committee Disbursement reports, published by the National Bureau of Statistics (NBS) has revealed.

The deductions were said to have been made between 2019 and 2023 from the allocations given to state governments from the Federation Account.

The federation account is currently being managed under a legal framework that allows funds to be shared under three major components: statutory allocation, Value Added Tax (VAT) distribution, and derivation principle.

According to the analysis report, the deductions incurred by the sub-nationals were; N57bn in 2019, N74bn in 2020, before increasing to N86.2bn in 2021, N78bn in 2022, and N120.01bn as of December 2023. The figure indicated an increase of 110 percent, signaling the country’s huge debt amidst dwindling revenue.

However, it was observed that the most hit state by the deductions was Lagos, with about N131.1bn deducted for external debt servicing.

It was followed by Kaduna with N45.85bn deducted, and Cross River with N21.59bn deducted.

About N18.25bn, N14.76bn, N10.31bn, and N10.92bn were deducted from Oyo, Rivers, Ogun, and Edo respectively.

The least affected states were Borno (N1.55bn), Yobe (N2.1bn), and Zamfara (N2.1bn).

It was noted that the total amount deducted was mostly fixed throughout the year except for January and February.

Despite this heavy debt servicing, the federal government has not restrained from obtaining loans to service its expenditures.

For records, the Government borrowed a total sum of N4.94tn from domestic sources in the first six months of the administration of President Bola Tinubu, indicating significant dependence on loans.

Furthermore, the domestic debts rose by N4.94tn from N48.3tn recorded in June 2023 to N53.3tn as of December 31, 2023. Although external loans reduced by $664m in the six months ($43.2m in June and $42.4m in December), the figure increased by $901m when compared with $41.5m in September and $42.4m in December.

Also, Nigeria spent a sum of N7.8tn to service its debt obligations in 2023, a 121 percent increase compared to N3.52tn incurred in the previous year.

An analysis of the domestic debts showed that the government borrowed N2.29tn from the FGN bonds market with the figure increasing by 5.45 percent from N41.97tn recorded in June 2033 to N44.26tn as of December 31, 2023.

The government also borrowed N1.79tn from treasury bills, N8.47bn from savings bonds, N350bn in Sukuk loans, and N549.02bn from promissory notes.

Under external debt, increased borrowing was observed from the African Development Bank and the Exim Bank of China, with a total loan of $541.5m.

The increased debt is, however, contradictory to promises made by the Tinubu administration to reduce borrowing and focus more on increasing revenues.

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