Debt servicing surpasses capital spending by N3.9tn in two years

Edun

Debt servicing in Nigeria outpaced capital expenditure by N3.9tn over the past two years, highlighting growing fiscal pressures on the federal budget, according to a media brief obtained by The PUNCH on Sunday from the Federal Ministry of Finance.

The brief also showed that the Federal Government spent N27.2tn servicing public debt between 2024 and 2025.

The document by the Special Adviser to the Minister of Finance and Coordinating Minister of the Economy on Media and Communications, Dr Ogho Okiti, explained that the rise in debt servicing costs over the two-year period was largely driven by macroeconomic adjustments, particularly the depreciation of the naira and higher domestic interest rates.

Data contained in the brief showed that the Federal Government spent N12.63tn on debt servicing in 2024, significantly above the N8.56tn provided in the budget for the year. In 2025, debt service payments rose further to N14.57tn, exceeding the N13.12tn budgeted for the year.

Combined, the figures indicate that the Federal Government spent about N27.2tn on debt obligations within the two-year period, reflecting the growing fiscal pressure from rising interest costs and exchange rate adjustments.

A year-on-year comparison showed that debt servicing increased by N1.94tn between 2024 and 2025, representing a 15.4 per cent increase. The data also revealed that the actual spending on debt servicing exceeded budget projections in both years.

In 2024, debt servicing overshot the budget by about N4.07tn, as actual payments rose to N12.63tn compared with the N8.56tn initially approved.

The overshoot moderated in 2025 but remained significant, with actual spending of N14.57tn exceeding the N13.12tn budget by N1.45tn.

Overall, debt servicing exceeded budget projections by about N5.52tn across the two years. According to the brief, the increase in debt servicing was largely driven by macroeconomic factors rather than new borrowing.

The document explained that exchange rate movements significantly increased the naira value of external debt obligations.

It stated, “External debt is denominated in foreign currency. When the naira depreciates, the naira cost of servicing the same dollar debt rises automatically. This is a valuation effect and not evidence of new borrowing.”

The brief also linked the rise in debt servicing costs to higher domestic interest rates following tighter monetary policy aimed at stabilising inflation and the exchange rate. It noted that interest rates rose as the Central Bank of Nigeria tightened monetary policy, which in turn increased the cost of servicing domestic debt instruments.

An analysis of Federal Government finances also showed that debt servicing absorbed a large portion of government revenue during the period under review. According to the document, the Federal Government’s aggregate revenue rose from N12.48tn in 2023 to N20.98tn in 2024, reflecting improved tax administration, stronger remittance discipline, and growth in non-oil revenue sources.

With debt servicing reaching N12.63tn in 2024, the government spent about 60 per cent of its revenue on debt obligations that year. By November 2025, Federal Government revenue had reached N22tn, while debt service payments stood at N14.57tn, indicating that about two-thirds of revenue was used to service debt.

This shows that the debt service-to-revenue ratio rose from about 60 per cent in 2024 to roughly 66 per cent by November 2025.

Despite the pressure from debt servicing, the government maintained relatively high capital spending during the period. Total capital expenditure stood at N11.59tn in 2024, with a performance rate of 84 per cent, while N11.7tn had been spent on capital projects as of November 2025, representing 76 per cent performance.

The data showed that in 2024, the N12.63tn spent on debt servicing exceeded capital expenditure by about N1.04tn. In 2025, the gap widened further, as debt servicing of N14.57tn exceeded capital spending of N11.7tn by about N2.87tn.

Across the two years, debt servicing exceeded capital expenditure by about N3.91tn. The ministry noted that the perception that capital projects were not being implemented was inaccurate, explaining that federal capital spending consists of both direct budget releases to ministries, departments and agencies and project-tied loans from development partners.

It explained that multilateral and project-tied loans are disbursed directly by development partners and are tied to specific infrastructure and social projects. “These projects proceed even when MDA cash releases are limited,” the document stated.

The brief also highlighted broader fiscal reforms undertaken by the Federal Government since 2023, particularly the decision to halt what it described as the illegal and excessive use of Ways and Means advances from the Central Bank of Nigeria.

According to the ministry, these overdrafts had accumulated to about N30tn and were previously not transparently reflected in the fiscal deficit framework. The document explained that the advances had now been securitised and formally recognised within the public debt framework, improving transparency in public finance reporting. Punch