Nigeria’s Federal Government sharply increased its domestic borrowing in 2025, drawing N9.19tn from financial institutions, data from the Central Bank of Nigeria (CBN) reveals. This surge came despite persistently high interest rates and has intensified competition for credit, leaving private businesses struggling to secure loans for expansion, working capital, and operations. Analysts say this widening gap highlights the growing strain on the country’s financial system.
While credit to the government climbed from N25.03tn in January to N34.22tn by December 2025, private sector borrowing fell by N1.543tn over the same period. Economists and industry leaders warn that this “crowding-out” effect is pushing banks to favor low-risk government securities over lending to productive sectors of the economy, raising borrowing costs and stalling investment in manufacturing, agriculture, and services.
Segun Kadir Ajayi, Director-General of the Manufacturers Association of Nigeria, noted that many firms are now forced to prioritize repaying existing debts rather than taking on new loans. “Private sector borrowing is being crowded out. Banks prefer lending to the government due to lower risk and attractive interest rates, leaving businesses with limited access to finance,” he said, highlighting the need for policy intervention to stimulate industrial growth through targeted credit programs.
Renowned economist Muda Yusuf added that the government’s rising appetite for domestic funds, driven by widening fiscal deficits and the issuance of Treasury bills and bonds, has tilted the financial system in favor of public borrowing. With the Monetary Policy Rate at 27%, private sector loans remain prohibitively expensive, restricting economic expansion and job creation, while government borrowing continues largely unimpeded.
As Nigeria faces persistent fiscal pressures, including rising debt servicing costs and inflationary risks, experts stress that balancing credit allocation between public and private sectors is critical. Reducing government borrowing, lowering interest rates, and boosting revenue mobilization are key to unlocking private sector investment, supporting industrial growth, and sustaining economic recovery.
source: Punch