Nigeria’s N20.12 Trillion Budget Deficit Could Squeeze Private Sector Credit in 2026
Nigeria’s projected N20.12 trillion budget deficit for the 2026 fiscal year has raised alarms among financial analysts, who warn that the federal government’s borrowing plans could crowd out private sector financing. According to the 2026–2028 Medium-Term Expenditure Framework (MTEF), the government intends to fund N14.30 trillion—about 71% of the total deficit—through domestic borrowing. While technically feasible, experts say this could trigger sustained high interest rates and intensify competition for limited liquidity.
Financial analysts interviewed by Nairametrics highlighted the potential consequences for corporate Nigeria. “The domestic market can absorb N14.30 trillion, but not without strain,” said Blakey Ijezie, founder of Okwudili Ijezie & Co. David Adonri, CEO of Highcap Securities, added, “Corporations will raise funds at yields that outpace government borrowing. Debt-funded growth becomes extremely difficult in that environment.” Analysts stress that while local markets have capacity, private sector financing will likely come at significantly higher interest rates.
The government’s reliance on domestic borrowing has grown sharply in recent years. Data from the Debt Management Office (DMO) shows borrowing rose from N2.34 trillion in 2021 to N8.58 trillion in 2024, with the 2025 budget marking a shift toward primary dependence on local markets. Analysts attribute this to rising debt service costs and tighter conditions for external borrowing. While domestic debt helps close fiscal gaps in the short term, it raises concerns about long-term market sustainability and private sector participation.
Experts also warn of a “crowding out” effect, where government borrowing absorbs liquidity that would otherwise be available to businesses. Tilewa Adebajo, CEO of CFG Advisory, noted that although the market has the mechanical capacity to absorb the debt, the cost could be steep. Corporate borrowing rates for riskier firms could jump to 25–30%, limiting access for small and medium-sized enterprises (SMEs) and slowing private sector-driven growth. Analysts say this could stifle investment, job creation, and economic recovery.
As Nigeria seeks to fund a record N14.30 trillion from the domestic market in 2026, financial conditions remain tight. The Monetary Policy Rate (MPR) currently stands at 27%, with additional margins applied by banks to cover risk. SEC-approved commercial papers reached N1.37 trillion as of October 2025, with a utilization rate of 54%. Analysts predict continued high issuance in 2026, but with elevated borrowing costs, many private sector companies may struggle to access affordable funding even as the government dominates the domestic debt market.
source: nairametrics