The federal government is planning to use an unprecedented amount of borrowing to fund its 2026 budget.
According to a new budget document, the government has to cover a massive N20.12 trillion shortfall (or “deficit”) for 2026. To close this gap, it plans to take out N17.89 trillion in new loans.
Where the Money Will Come From
The government will raise this record amount of debt mostly from sources inside Nigeria.
- 80% of the loan (N14.31 trillion) will come from domestic sources (Nigerian banks, bonds, etc.).
- 20% of the loan (N3.58 trillion) will come from external sources (foreign banks and international bodies).
The large-scale borrowing is necessary because the deficit for 2026 is 43% higher than the shortfall recorded in 2025.
Despite the massive debt figure, the government believes the situation will stabilize. It predicts that Nigeria’s economy will grow enough to make the debt look smaller relative to the country’s total income (Gross Domestic Product, or GDP).
The ratio of the budget shortfall to the GDP is expected to shrink from 4.17% in 2025 to 3.61% in 2026, suggesting that while the government is borrowing more, the economy is also getting bigger.
Debt Servicing
The most worrying sign in the new budget is how much money must be set aside just to pay off old loans. This is called “debt service cost.”
The amount spent on debt service is set to rise from N13.94 trillion in 2025 to N15.52 trillion in 2026.
This single cost is projected to consume nearly 45% of the government’s entire revenue in 2026, making it difficult to fund developmental projects.
This situation will worsen: by 2027, the debt service could consume a staggering 53% of all government revenue.
New Projects Squeezed
As the cost of debt rises, the government is being forced to spend more on “recurrent” bills, things like salaries and pensions, at the expense of new development.
Money for salaries, pensions, and other government running costs will jump from N13.59 trillion to N15.27 trillion. This includes personnel costs (salaries): N8.36 trillion, and pensions and retirees’ benefits: N1.38 trillion.
The budget for new infrastructure, equipment, and development (Capital Expenditure) is being significantly reduced, falling from N26.19 trillion in 2025 to N22.37 trillion in 2026.
To manage this drop, the government is not funding many new projects. Instead, it is planning to carry over 70% of the money that was allocated for projects in 2025 but wasn’t spent.
This means the government’s focus is now on simply finishing projects that have already been started, rather than initiating new major developments.
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