NEWS
Nigeria Spends N7.7tn on Debt Interest as Capital Spending Falls to N700bn
Nigeria Spends N7.7tn on Debt Interest as Capital Spending Falls to N700bn
The Federal Government’s N7.7tn interest bill exceeded its N6.2tn revenue by N1.5tn in the first half of 2026.
Reported capital expenditure fell to N700bn, about one-eleventh of interest payments, despite a 72.2 percent increase in revenue.
The World Bank warns that high borrowing costs and personnel expenses continue to restrict fiscal space, while spending pressures could intensify in the second half of the year.
October 12, () – Nigeria’s rising debt-servicing burden continues to constrain the Federal Government’s capacity to finance infrastructure and other development priorities, as interest payments reached N7.7tn in the first half of 2026, exceeding total revenue by N1.5tn.
The figures, contained in the World Bank’s October 2026 Nigeria Development Update, show that interest payments amounted to 124.2 per cent of the Federal Government’s N6.2tn revenue between January and June.
The findings highlight the pressure that debt obligations continue to place on public finances, even as government revenue improves.
They also raise questions about the sustainability of fiscal gains when a substantial proportion of available resources is absorbed by financing existing debt rather than delivering new public infrastructure.
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Rising Interest Costs Outpace Revenue
According to the World Bank, interest payments rose by N2.1tn, or 37.5 per cent, from N5.6tn in the first half of 2025 to N7.7tn in the corresponding period of 2026.
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The increase pushed interest costs to 3.1 per cent of gross domestic product, from 2.5 per cent a year earlier, amid high domestic borrowing costs.
However, stronger revenue collections helped moderate the interest-to-revenue ratio. Federal Government revenue increased by N2.6tn, or 72.2 per cent, from N3.6tn in the first half of 2025 to N6.2tn in the same period of 2026.
The World Bank attributed the improvement to a recovery in oil receipts, stronger corporate tax collections and higher independent revenues.
Customs revenue remained broadly stable, while Value Added Tax collections were comparatively flat.
Consequently, the interest-to-revenue ratio declined from approximately 155.6 per cent to 124.2 per cent, an improvement of 31.4 percentage points.
Although this represents progress, the figures show that revenue growth has yet to catch up with the government’s interest obligations.
The Federal Government still spent more on servicing debt than it collected from all revenue sources combined during the six-month period.
Capital Projects Bear the Brunt
The pressure becomes more apparent when interest payments are compared with capital expenditure.
Reported federal capital spending fell from about one per cent of GDP in the first half of 2025 to 0.3 percent in the corresponding period of 2026, equivalent to approximately N700bn.
At N7.7tn, interest payments were about 11 times the amount recorded for capital projects. Meanwhile, total federal expenditure rose by N1.5tn, or 10.3 percent, from N14.6tn to N16.1tn.
Personnel costs also increased, climbing from N3.7tn to N4.2tn following wage adjustments.
Combined interest and personnel expenditure therefore reached N11.9tn, accounting for approximately 73.9 percent of total federal spending and nearly twice the government’s revenue.
This leaves a narrower margin for capital projects and other competing demands, including healthcare, education, security and social services.
However, the figures on reported capital expenditure should be interpreted with caution. Low reported spending does not necessarily mean that all planned projects were abandoned; it may also reflect delays in budget execution and the timing of expenditure reporting.
Smaller Deficit, but Fiscal Risks Remain
Despite the pressure from interest and personnel costs, the Federal Government’s fiscal deficit narrowed from N11tn, equivalent to five per cent of GDP, in the first half of 2025 to N9.9tn, or four per cent of GDP, in the first half of 2026.
The improvement suggests that stronger revenue collections helped reduce the gap between federal income and expenditure.
However, the World Bank warned against interpreting the better fiscal outcome as evidence that underlying expenditure pressures have been resolved.
“The improved early-year fiscal outturn should be interpreted cautiously given the low reported federal capital spending,” the institution stated.
It added that personnel and interest costs continued to absorb a large share of available fiscal space, while increased capital execution, recurrent spending and pre-election expenditure could add to pressure later in the year.
The warning is significant because a narrower deficit achieved partly through subdued capital expenditure may prove difficult to sustain if the government resumes delayed projects while recurrent obligations continue to rise.
The World Bank also identified overlapping budget cycles, weak expenditure planning, and poor alignment between approved allocations and implementation capacity as persistent weaknesses in fiscal management.
Domestic Borrowing Drives Debt Costs
Nigeria’s broader debt position provides further context for the rising interest bill.
The World Bank estimated the country’s debt stock at approximately N177tn in 2025, equivalent to 40 percent of GDP, compared with N67tn, or 27.6 percent of GDP, in 2021.
It explained that exchange-rate valuation effects and the recognition of previously accumulated liabilities, including securitised Ways and Means advances, contributed significantly to the increase.
Domestic debt accounted for 57.9 percent of Nigeria’s debt stock in 2025 but generated 72.6 percent of interest payments. This disparity reflects the relatively high cost of domestic borrowing.
The World Bank recommended limiting expensive borrowing, prioritising concessional financing and extending debt maturities to reduce refinancing risks.
It also projected that Nigeria’s consolidated fiscal deficit would widen from 3.1 percent of GDP in 2025 to 3.5 percent in 2026, partly because of rising federal interest, personnel and pre-election spending.
The report’s findings underscore the importance of converting stronger revenue collections into sustainable fiscal outcomes. Improving revenue mobilisation alone may not be sufficient if borrowing costs continue to absorb resources that could otherwise finance development.
For the Federal Government, the challenge is to contain debt-servicing costs, improve budget execution and protect productive capital spending without undermining fiscal discipline.
Until those pressures ease, higher revenue may provide only limited room to expand public investment and improve service delivery.
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