…debt obligations now dictate fiscal priorities, analysts warn
Nigeria’s federal budgets over the past decade have consistently favoured the ministry of finance, reflecting the heavy burden of rising debt at the expense of growth-driving sectors such as agriculture, power and works.
A review of budget allocations between 2016 and 2025, as well as the proposed 2026 appropriation bill currently before the National Assembly, shows that the finance ministry has consistently ranked among the top recipients of federal spending, even as ministries central to infrastructure delivery and economic diversification received comparatively smaller shares.
As contained in the federal government’s proposed 2026 budget, finance is set to receive the largest allocation of N16.78 trillion out of the top ten ministries, followed by budget and economic planning with N9.10 trillion. Works is earmarked N3.49 trillion; defence, N3.15 trillion; education, N2.40 trillion; health, N2.15 trillion; agriculture, N1.45 trillion; Niger Delta affairs, N1.35 trillion; police affairs, N1.33 trillion; and power, N1.17 trillion.
Data from budget documents and analysis by civic group BudgIT show the pattern has held through recession, the COVID-19 shock and recent economic reforms, highlighting the structural constraints facing Africa’s most populous economy.
In the 2016 budget, allocations for finance-related functions totalled just under N1 trillion, part of early efforts to stabilise the economy following a collapse in oil prices. By 2020, funding for the merged Ministry of Finance, Budget and National Planning had climbed to over N4 trillion, driven largely by rising debt service obligations and statutory transfers.
The 2025 budget proposal saw finance-linked spending, including budget and national planning, exceed N22.3 trillion, rising further to N25.88 trillion in 2026, positioning these ministries among the country’s highest-funded government entities.
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By contrast, agriculture has typically received between N75 billion and N2trillion annually over the same period, while power and works allocations have fluctuated sharply, often constrained by fiscal pressures.
Even in years when infrastructure spending rose, the increases were rarely sustained in real terms once inflation and currency depreciation were accounted for.
While the finance ministry does not implement capital projects in the way that works or power ministries do, its ballooning allocation reflects Nigeria’s expanding fiscal obligations, including debt servicing, sinking fund contributions and statutory transfers.
These costs have grown steadily since 2016, when the government ramped up borrowing to plug revenue shortfalls and defend the economy.
Public debt climbed steadily from N17.36 trillion in 2016 to about N26.22 trillion by 2019, rising roughly 51%, according to the Debt Management Office (DMO). Debt surged further after 2020, reaching N152.4 trillion by mid‑2025, driven by pandemic-related spending, weak oil revenues, and continued borrowing. Over the same period, debt-service costs jumped from modest levels in 2016 to over N15 trillion projected in the 2026 budget, consuming an increasing share of federal revenue and constraining capital expenditure.
“Nigeria’s fiscal priorities have been centred on managing mounting public debt and maintaining macroeconomic stability amid revenue shortfalls,” Abiodun Keripe, Managing Director, Afrinvest Consulting Limited, told BusinessDay.
“This reflects a structural dependence on borrowing to fund deficits, with debt service costs rising from about N1.48 trillion in 2016 to over N14.3 trillion in 9 months 2025.”
Citing data from the finance ministry, Keripe said that debt servicing has consumed a growing share of the federal budget, rising to as much as 67.7% of actual revenue in recent years. “This reflects challenges such as oil revenue volatility, weak non-oil tax collection, and fiscal leakages,” he noted, adding that short-term debt obligations are consistently prioritised over long-term investments in human capital and infrastructure, perpetuating cycles of low growth and poverty.
From 2016 to 2025, debt service as a share of the budget surged from roughly 24% to nearly 50%, significantly reducing allocations to sectors like agriculture, power, works, education, and health.
Keripe highlighted, for instance, that in the 2025 budget, debt service at N14.32 trillion exceeded the combined spending on education (N3.52 trillion), health (N2.48 trillion), and agriculture (under N1.5 trillion). “This has limited capital expenditure in these areas, exacerbating issues such as food insecurity, power shortages, and poor human development outcomes,” he said, noting that the poverty headcount ratio reached about 57% as of 2023, according to World Bank data.
He warned that Nigeria appears to be approaching diminishing returns from heavy spending on fiscal management without complementary investments in productive sectors.
While tools like debt management have stabilised short-term finances, the debt-to-GDP ratio climbed to 52% by mid-2025 — before reducing to 38% following GDP rebasing — and debt service-to-revenue ratios hit 77.5% in 2024.
“Without boosting sectors like agriculture and manufacturing, which could enhance revenue through exports and taxes, this creates a feedback loop of higher borrowing, inflation averaging 33% in 2024, and subdued growth around 3–4% annually,” he added.
Reforms such as fuel subsidy removal in 2023 and foreign-exchange liberalisation have the potential to free up budget space, but their impact has been mixed. Subsidy removal is said to have saved an estimated N1.2–N4 trillion annually, allowing some reallocation to social programs and infrastructure, while FX reforms helped improve reserves and revenue mobilisation, supporting projected growth of 3.7% in 2024 and 4.1% in 2025.
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Short-term effects included a spike in inflation to 36.8% by late 2024, though it eased to 15.15% by December 2025.
Analysts note that medium-term benefits may materialise over two to five years if savings are transparently redirected and paired with targeted investment and security improvements.
Also speaking on the issue, Ibukun James, senior programme officer at BudgIT, re-echoed that the ballooning debt service allocation has made the ministry of finance the dominant beneficiary of the budget, turning it into a mechanism primarily for managing obligations — debt service, guarantees, sinking funds, and statutory payments — rather than channelling resources into growth. “Fiscal management is now about avoiding default, stabilising cash flow, and protecting credibility rather than driving capital formation,” he said.
James explained that rising borrowing costs and expanding debt stock mean that more government income is absorbed before sectoral allocations are made, leaving capital and social spending as adjustment variables. “When revenues fall short, it’s not debt service that gets cut; it’s releases to ministries responsible for infrastructure, human capital, and productive sectors,” he said, stressing that this pattern structurally disadvantages growth sectors.
Analysts further say the underfunding of agriculture, which employs over a third of Nigeria’s workforce, and sectors like power and infrastructure, has limited the economy’s resilience.
They warn that prolonged underinvestment in physical infrastructure and agriculture risks slowing long-term growth, even if short-term fiscal stability improves.
“Debt service is about N15 trillion, and the total finance budget is N16 trillion. If we take debt service out, there is very little left for other sectors,” Muda Yusuf, CEO, Centre for Promotion of Private Enterprises, warned, expanding on the challenges posed by the dominance of debt service in the federal budget.
Power and works, critical to industrial growth and logistics, have also struggled to secure consistent funding. Nigeria’s grid capacity remains far below 5,000 megawatts for a population of over 200 million, while poor road infrastructure continues to raise business costs and weigh on competitiveness.
Officials argue that infrastructure and agriculture benefit indirectly from improved fiscal stability and reforms coordinated through the finance ministry, including fuel subsidy removal and foreign-exchange liberalisation. Those measures, they say, are intended to restore investor confidence and crowd in private capital for sectors traditionally reliant on public spending.
However, Yusuf argued that managing the debt burden sustainably is critical, including limiting high-interest borrowing and refinancing expensive domestic and external loans. “Many of the eurobonds and federal government bonds carry rates above 20%. Domestic treasury bills are also expensive. These high-interest obligations alone create pressure that could otherwise have been directed to capital projects,” he added.
He also highlighted the need for more effective revenue mobilisation through tax reforms and expanded compliance. “If we collect more from the non-oil sector, we borrow less. Public-private partnerships should play a bigger role in financing infrastructure and other development projects, so the government doesn’t shoulder everything. Otherwise, debt service continues to consume most of the revenue, and other critical sectors remain underfunded,” he said.
He emphasised that without deliberate debt management strategies, Nigeria risks being trapped in a cycle where fiscal survival eclipses productive investment.
“Every naira going to debt service is a naira not going to education, health, agriculture, or infrastructure,” Yusuf said. “This is a structural problem, not just a temporary accounting issue.”
