Debt Obligations Outpace Revenue, Capital Spending Plummets Amid Oil Shortfalls
Nigeria’s debt burden is putting increasing pressure on public finances, with nearly three-quarters of federal revenue spent on debt servicing in the first seven months of 2025.
According to the 2026–2028 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper released by the Budget Office of the Federation, the Federal Government generated N13.67 trillion between January and July 2025, of which N9.81 trillion or 71.8%, went to servicing domestic and external debts.
When combined with personnel costs for ministries, departments, agencies, and government-owned enterprises (N4.51 trillion), debt service and salaries alone consumed 105% of total revenue, highlighting a widening fiscal gap.
Revenue Shortfalls Driven by Oil Decline
The report shows that oil revenue fell sharply to N4.64 trillion, far below the pro rata target of N12.25 trillion, leaving a shortfall of N7.62 trillion (62.2%). Dividends from entities like Nigeria LNG and development finance institutions also underperformed, generating only N104.64 billion against a target of N428.71 billion.
Some non-oil revenue lines performed modestly better. Company Income Tax brought in N2.54 trillion, slightly above the target, while VAT collections rose 11% to N630.10 billion. However, customs revenue dropped 39.1%, and federation account levies fell 70.1%, with no revenue from oil royalties during the period.
Overall, aggregate revenue of N13.67 trillion was significantly below the pro rata target of N23.85 trillion, leaving a revenue gap of N10.19 trillion (42.7%).
Debt Servicing Overshoots, Capital Spending Collapses
Total government spending, including project-tied loans and government-owned enterprises, reached N20.40 trillion, short of the pro rata target of N32.08 trillion. Recurrent expenditure remained near target (N15.68 trillion), but non-debt recurrent spending fell 26% below expectations, at N5.87 trillion.
By contrast, debt servicing exceeded projections, with domestic debt costing N4.65 trillion (+10.9% above target) and foreign debt N5.07 trillion (+28.7%).
Capital expenditure bore the brunt of the fiscal strain. Spending totaled N3.60 trillion, 73.7% below the pro rata target of N13.67 trillion, with just N834.80 billion released to ministries and agencies from a planned N10.81 trillion.
The Budget Office cited the extension of the 2024 budget as a factor, noting that N2.23 trillion from 2024 capital allocations was still being financed in 2025.
Implications for Public Services
The MTEF underscores that the high cost of debt continues to crowd out investment in critical sectors such as health, education, and infrastructure, leaving limited fiscal space to boost development. In 2024, debt service alone consumed 77.5% of federal revenue, showing that pressures remain elevated in 2025.
Analysts warn that unless revenue generation improves, especially from oil and debt management is strengthened, capital projects and social service delivery may continue to suffer, potentially constraining Nigeria’s long-term economic growth.
About the Author
