Nigeria’s projected N20.12 trillion budget deficit for the 2026 fiscal year could severely constrain access to credit for the private sector, analysts have warned.
According to the 2026–2028 Medium-Term Expenditure Framework (MTEF), the federal government plans to finance N14.30 trillion, about 71.1% of the total deficit, through domestic borrowing.
Analysts say this level of borrowing may be technically feasible but could trigger sustained high interest rates, limit credit availability for corporates, and intensify competition for limited liquidity in the financial system.
Financial experts who spoke to Naijaonpoint expressed concerns about the implications of crowding out organized private sector in Nigeria’s debt market.
Analysts agreed that while the capacity exists, the cost implications for private sector financing could be steep. They are more likely to raise capital at a much higher interest rate.
The federal government’s reliance on the domestic debt market has grown in recent years, driven by rising fiscal deficits and tighter external borrowing conditions.
Data from the Debt Management Office (DMO) shows domestic borrowing rose from N2.34 trillion in 2021 to N8.58 trillion in 2024, with the 2025 budget marking a turning point.
As Nigeria moves further away from external debt sources, the local market is absorbing more of the burden—raising questions about sustainability.
The proposed N14.30 trillion domestic borrowing for 2026 has sparked debate over whether Nigeria’s capital markets can withstand such demand without distorting credit flows.
The crowding-out effect may slow growth and restrict private sector participation in economic recovery.
Nigeria’s move to fund a record N14.30 trillion from the domestic market in 2026 comes amid rising benchmark rates and tight credit conditions.
As interest rates remain high and liquidity tight, Nigeria’s private sector may struggle to secure affordable funding, even as the government soaks up domestic capital to bridge its fiscal gap.