Lower bond yields and fewer debt issuances help reduce the Federal Government’s external payment obligations…..
Nigeria’s debt service payments recorded a sharp decline at the start of 2026, with the Federal Government spending $405.3 million in January, representing a 38.5 percent year-on-year drop compared with the $659.7 million recorded in the same period of 2025.
The figures are contained in the International Payments Report released by the Central Bank of Nigeria.
An analysis of the report shows that the downward trend in debt servicing costs was also reflected in the country’s overall payments for 2025.
Total debt service payments fell slightly to $7.22 billion in 2025, compared with $7.44 billion recorded in 2024, representing a 2.95 percent decline.
The reduction was largely driven by lower servicing costs on key domestic debt instruments, particularly Federal Government Bonds (FGN Bonds) and Nigerian Treasury Bills, which account for a significant portion of Nigeria’s domestic debt obligations.
Analysts say the drop in debt servicing payments reflects two key developments in the financial market: reduced issuance of new debt instruments and declining yields within Nigeria’s fixed-income market.
Lower yields mean the government pays less interest on newly issued securities, easing the overall cost of servicing debt.
Despite the decline in servicing costs, the Federal Government continued to raise significant funds through the domestic debt market to finance budget deficits.
The Debt Management Office raised ₦5.26 trillion through the FGN bond market in 2025, helping to fund the Federal Government’s spending plans.
Investor appetite remained strong throughout the year, with total subscriptions for the bonds reaching ₦8.96 trillion, significantly exceeding the amount offered.
Demand for government securities also remained robust at the beginning of 2026.
In January 2026, the Debt Management Office initially targeted ₦900 billion in bond sales but ultimately raised ₦1.54 trillion after the offer was heavily oversubscribed.
The funds were generated through the sale of three different FGN bond instruments, highlighting continued investor confidence in Nigeria’s sovereign debt market.
Meanwhile, Nigeria’s domestic debt stock has continued to grow in recent years as the government increasingly relies on local borrowing to finance its fiscal deficit.
Data shows that as of September 30, 2025, Nigeria’s total domestic debt had climbed to ₦77.81 trillion, driven largely by increased issuances of FGN bonds.
The rise in domestic borrowing reflects the government’s strategy to rely more on the local debt market while managing exposure to external debt and exchange rate risks.
However, economists note that while the recent decline in debt servicing costs provides short-term relief for government finances, the continued expansion of the domestic debt stock could pose longer-term fiscal challenges if borrowing levels remain elevated.
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