Nigeria’s domestic debt burden is getting more expensive, with debt service rising by 20.3 percent to N3.14 trillion in the first quarter of 2026, up from N2.61 trillion recorded in the same period last year. Fresh figures from the Debt Management Office (DMO) show that the increase was largely driven by higher interest payments, highlighting the growing cost of financing the government’s spending through the local debt market.
Interest payments climbed by 25.4 percent to N2.97 trillion, compared with N2.37 trillion in Q1 2025, accounting for the bulk of the increase in domestic debt service. Interestingly, principal repayments moved in the opposite direction, falling by 29.9 percent from N241.91 billion to N169.68 billion. The figures suggest that while Nigeria is paying less toward the principal of its domestic obligations, the cost of carrying the debt is becoming significantly heavier.
Economists say Nigeria’s growing reliance on domestic borrowing has helped shield the country from some foreign exchange risks because naira-denominated debts are repaid in naira. However, Dumebi Oluwole, lead economist at Stears, warned that the strategy has not removed the broader vulnerabilities facing the economy. With borrowing costs remaining high, a larger portion of government revenue is being channelled into servicing existing debt instead of funding infrastructure, public services and other development priorities.
The concern also goes beyond government finances. Paul Alaje, chief economist and public policy expert, stressed that borrowing is not necessarily harmful if the funds are invested in productive areas that generate economic activity and improve the government’s ability to repay. Oluwole, meanwhile, warned that heavy government borrowing could crowd out private businesses as banks and other investors may prefer government securities over lending to businesses perceived as riskier. This could make access to credit more difficult for companies and slow private-sector growth.
With Nigeria still needing to borrow to finance budget deficits, economists say the country faces a delicate balancing act. Domestic borrowing can reduce exposure to foreign currency shocks, but rising interest costs could create another financial pressure if borrowed funds fail to generate sufficient economic returns. The bigger question, therefore, is no longer simply how much Nigeria borrows, but whether the money borrowed is being put to work in ways that can grow the economy, create revenue and ultimately make the country’s debt easier to manage.
source: business day
