Nigeria’s Debt Challenge Deepens As Short-Term Government Borrowing Surges
By FIDELUS ZWANSON
NIGERIA’S Federal Government domestic debt rose to ₦87 trillion at the end of the second quarter of 2026, raising fresh concerns about borrowing costs, refinancing obligations and the sustainability of public finances.
The increase was largely driven by a sharp expansion in Nigerian Treasury Bills (NTBs), short-term instruments that require the government to repay or refinance obligations within relatively brief periods. Consequently, the growing share of short-term borrowing has placed the structure of the country’s domestic debt under closer scrutiny.
Figures from the latest debt analysis showed that the Federal Government’s domestic debt increased by 5 per cent from ₦82.9 trillion in the first quarter of 2026. Compared with the ₦76.6 trillion recorded in the corresponding period of 2025, the debt stock rose by 13.6 per cent.
The development reflects the government’s continued dependence on the domestic financial market to fund its expenditure and meet fiscal obligations. However, the rising debt stock has renewed questions about the government’s capacity to balance its financing needs with the cost of servicing existing liabilities.
Treasury Bills Drive Fresh Borrowing
Nigerian Treasury Bills accounted for the largest share of the latest quarterly increase. Their outstanding value climbed by ₦2.9 trillion, representing a 17.6 per cent rise, to approximately ₦19.5 trillion.
As a result, Treasury Bills contributed about 71 per cent of the ₦4.1 trillion increase in the Federal Government’s domestic debt during the quarter.
This rapid expansion highlights the growing importance of short-term borrowing in the government’s financing strategy. Although Treasury Bills provide a means of raising funds within the domestic market, their shorter maturities mean that the government must frequently return to investors to refinance obligations as they fall due.
Moreover, the refinancing challenge could become more expensive if interest rates remain elevated or investors demand higher yields before committing funds. Under such circumstances, the government could face increased pressure to secure fresh financing simply to replace maturing debt.
Nevertheless, short-term borrowing does not automatically translate into a debt crisis. Its implications depend on the government’s ability to manage maturities, maintain investor confidence and secure financing on sustainable terms.
Government Bonds Remain the Largest Debt Component
Despite the rapid growth in Treasury Bills, Federal Government of Nigeria bonds remained the dominant component of the domestic debt portfolio.
The bond stock increased by 2.2 per cent quarter-on-quarter and 6.9 per cent year-on-year to approximately ₦64.8 trillion. This represented about 74.5 per cent of the Federal Government’s domestic debt.
Naira-denominated bonds accounted for ₦41.5 trillion, while securitised Ways and Means advances stood at approximately ₦22.1 trillion. Dollar-denominated domestic bonds contributed another ₦1.3 trillion.
Other instruments, including promissory notes, Sukuk, savings bonds and green bonds, made up the remainder.
The composition demonstrates that longer-term securities continue to provide the foundation of government borrowing. However, the faster expansion of Treasury Bills suggests that short-term financing is becoming increasingly significant within the overall debt-management framework.
Between the second quarter of 2024 and the corresponding period of 2026, the Federal Government’s domestic debt increased by approximately ₦16.6 trillion, representing growth of about 24 per cent.
Debt-to-GDP Ratio Offers Only Part of the Picture
The absolute size of Nigeria’s domestic debt does not, on its own, determine whether the country can meet its obligations. Analysts also consider the size of the economy, government revenue, borrowing costs and the maturity profile of outstanding liabilities.
Based on the figures in the latest analysis, the ₦87 trillion domestic debt stock represented approximately 20.2 per cent of Nigeria’s 2025 gross domestic product. Using projected economic output for 2026, the ratio falls to around 17 per cent.
That lower projected ratio offers some perspective on the debt burden relative to the economy’s size. However, it should not be interpreted as proof that the government faces no significant fiscal risks.
The government’s ability to generate revenue remains central to determining how comfortably it can service its obligations. A country may have a relatively moderate debt-to-GDP ratio and still experience considerable pressure if public revenue is insufficient to cover interest payments and other essential expenditure.
For Nigeria, therefore, the relationship between revenue collection and debt servicing remains a critical consideration. The government must finance public services, infrastructure and other commitments while meeting payments on existing borrowing.
Borrowing Could Influence Private-Sector Financing
The Federal Government’s position as a major issuer in the domestic fixed-income market also means that its borrowing decisions can influence the wider financial system.
Government securities attract banks, pension funds and other institutional investors seeking investment opportunities. Increased issuance can therefore sustain demand for these instruments, particularly when their yields remain competitive.
However, substantial government borrowing may also affect the availability and cost of funds for private businesses. If investors favour government securities over lending to companies, businesses could face greater difficulty obtaining affordable financing for expansion, employment and productive investment.
The actual impact depends on prevailing liquidity conditions, interest rates, investor demand and the capacity of financial institutions to fund both public and private borrowers.
Consequently, the government must consider not only how much it raises from the domestic market but also how its borrowing decisions affect private investment and economic activity.
Revenue Mobilisation Remains Central to Debt Sustainability
The increase in domestic debt reinforces the importance of improving government revenue and managing expenditure. Without stronger and more reliable revenue streams, additional borrowing could place further pressure on public finances, particularly when financing costs remain high.
Expanding non-oil revenue, improving tax administration, reducing leakages and strengthening compliance could help increase the resources available for debt servicing. At the same time, expenditure management and more disciplined borrowing decisions could reduce the need to repeatedly seek fresh financing.
The productive use of borrowed funds is equally important. Investments that support economic activity, improve infrastructure and expand the tax base could strengthen the government’s future revenue capacity. Conversely, borrowing that produces limited economic or fiscal returns could leave the government with repayment obligations without a corresponding improvement in its ability to meet them.
Ultimately, the rise in domestic debt to ₦87 trillion presents two related challenges. The first is the overall cost of borrowing, while the second is the increasing reliance on short-term instruments that require frequent refinancing.
The government’s debt-management strategy will therefore be assessed not simply by the size of its outstanding obligations, but also by their maturity structure, financing costs and economic returns.
As Treasury Bills account for a growing share of new domestic borrowing, strengthening revenue mobilisation and managing refinancing risks will remain essential to preserving fiscal flexibility and supporting sustainable economic growth.
