Nigeria’s Domestic Debt Burden Surges as Interest Payments Soar to ₦3.14tn
Nigeria’s cost of servicing domestic debt has climbed sharply, with federal government payments rising to ₦3.14 trillion in the first quarter of 2026, as elevated interest rates continue to increase the cost of borrowing from the local market.
Figures released by the Debt Management Office (DMO) show that domestic debt servicing has more than tripled compared with the corresponding period in 2024, when the government spent ₦989.24 billion.
The latest increase highlights the growing pressure high borrowing costs are placing on Nigeria’s public finances at a time when the government continues to depend heavily on domestic borrowing to fund its fiscal requirements.
Interest payments accounted for the overwhelming majority of the latest bill.
The Federal Government spent approximately ₦2.97 trillion on domestic debt interest in Q1 2026, compared with ₦902.68 billion recorded in the first quarter of 2024.
In effect, the interest bill alone in the first quarter of 2026 was roughly three times the entire domestic debt service expenditure recorded during the same period two years earlier.
Debt servicing continues to accelerate
The DMO data reveal a steep upward trend in domestic debt service.
Government expenditure on domestic debt servicing increased from ₦989.24 billion in Q1 2024 to ₦2.61 trillion in Q1 2025, before climbing further to ₦3.14 trillion in Q1 2026.
That represents an increase of about 217 percent within two years.
The rise has been driven primarily by interest charges rather than repayment of the principal.
Principal repayments amounted to ₦169.68 billion in Q1 2026, representing a decline of about 29.9 percent from ₦241.91 billion a year earlier.
Interest costs, however, moved in the opposite direction, increasing by approximately 25.4 percent year-on-year.
The figures underline the growing financial cost of Nigeria’s domestic borrowing strategy as interest rates remain relatively high and government continues to turn to the local capital market to bridge funding gaps.
Domestic borrowing reduces FX exposure
Economists acknowledge that borrowing in naira provides one important advantage: it reduces the government’s direct exposure to foreign-exchange movements.
Dumebi Oluwole, lead economist at Stears, explained that foreign borrowing creates obligations that must ultimately be settled in foreign currency.
With the naira having experienced significant depreciation, the domestic value of foreign-currency debt can increase substantially, alongside the cost of servicing it.
Domestic debt, by contrast, is denominated and repaid in naira.
However, Oluwole cautioned that shifting more borrowing into the domestic market does not automatically eliminate Nigeria’s fiscal vulnerabilities.
While the strategy can reduce currency-related risks, the country remains exposed to the consequences of high domestic interest rates.
The growing interest bill means that government revenue that could otherwise support infrastructure, social programmes and other development priorities is increasingly being diverted toward servicing existing obligations.
Economists warn about borrowing without returns
The central question, according to economists, is not necessarily whether Nigeria should borrow, but what it does with the money it raises.
Paul Alaje, chief economist and public policy expert, said debt becomes more difficult to manage when borrowed funds fail to generate economic returns.
Borrowing for productive investments can help expand economic activity, improve government revenue and strengthen the ability to repay the debt.
However, borrowing that does not produce sufficient economic value can leave the government with rising obligations and limited resources to meet them.
Alaje warned that persistently high interest rates combined with additional borrowing could eventually place pressure on other parts of the economy, including the exchange rate and taxation.
Private sector faces crowding-out risk
The rising government appetite for domestic financing could also have consequences beyond the public sector.
Oluwole warned that heavy government borrowing may reduce the amount of credit available to private businesses.
Banks and institutional investors often have the option of purchasing government securities, which can provide relatively attractive returns compared with lending to private companies that carry higher credit risks.
As government borrowing expands, financial institutions may therefore allocate a greater portion of their funds to government instruments rather than business loans.
This could make it more expensive or difficult for companies, particularly small and medium-sized businesses, to access financing for expansion, investment and job creation.
Fiscal pressure mounts
Nigeria consequently faces a difficult balancing act.
Domestic borrowing helps the government reduce its exposure to foreign-currency obligations, but expensive naira debt creates a growing interest burden.
At the same time, the government still needs to raise additional funds to finance budget deficits and meet expenditure commitments.
This creates the possibility of a cycle in which new borrowing increases the stock of debt, while higher interest costs consume a growing share of government resources.
The latest DMO figures therefore highlight a broader fiscal challenge facing Nigeria.
The issue is not simply the size of the country’s debt portfolio, but the cost of carrying that debt and the economic returns generated by borrowed funds.
For Nigeria to reduce pressure on public finances, economists say borrowed money must increasingly be channelled into productive investments capable of expanding economic output, strengthening government revenue and supporting future debt repayment.
Without stronger economic returns, rising interest costs could continue to consume valuable public resources and limit the government’s ability to fund the infrastructure and development programmes needed to support long-term growth.
