Nigeria’s government sharply increased its domestic borrowing in 2025, widening the gap between public and private sector access to credit and raising concerns that businesses are being crowded out of the financial system.
Data from the Central Bank of Nigeria (CBN) show that credit to the Federal Government rose by ₦9.19 trillion (US$20.0 billion) over the year, representing a 695.6 per cent swing relative to private sector borrowings. In contrast, net credit to businesses and households declined by ₦1.543 trillion (US$3.36 billion), underscoring the challenges firms face amid tight liquidity and elevated interest rates.
Credit to government includes funds extended through the purchase of Treasury bills, bonds, and other securities, as well as direct lending by banks. These funds are typically used to finance budget deficits, refinance maturing debt, and manage short-term cash flow gaps when revenue falls short of expenditure.
Private sector credit, on the other hand, is largely used for working capital, business expansion, trade, agriculture, services, and consumer spending. Economists consider private sector lending a key indicator of economic activity, as it directly supports production, job creation, and economic growth.
The surge in government borrowing has had a crowding-out effect, as banks increasingly allocate liquidity to finance public debt rather than lending to businesses. Analysts warn that this could slow investment, raise borrowing costs for firms, and stifle growth.
Monthly CBN data reveal that government credit rose from ₦25.03 trillion (US$54.4 billion) in January to ₦34.22 trillion (US$74.4 billion) in December 2025. After an initial rise to ₦27.11 trillion (US$58.9 billion) in February, government borrowing experienced fluctuations, with dips in March (₦24.59 trillion / US$53.4 billion) and April (₦23.93 trillion / US$52.0 billion), before surging in December by ₦7.87 trillion (US$17.1 billion), a 29.9 per cent month-on-month increase.
Private sector credit, in contrast, contracted from ₦77.38 trillion (US$168.2 billion) in January to ₦75.83 trillion ($164.8 billion) by December. While modest recoveries occurred in April (₦78.07 trillion / US$169.7 billion) and October (₦74.41 trillion / US$161.8 billion), the overall trend reflected a decline in available funding for businesses.
The 2025 surge in government borrowing far outpaced 2024 levels, when credit to the Federal Government increased by ₦3.62 trillion (US$7.87 billion) and private sector credit grew by ₦1.54 trillion (US$3.35 billion). The 2025 data illustrate heightened fiscal pressures and a growing reliance on domestic funding sources to meet budget obligations.
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Analysts note that rising government demand for local funds, particularly at high interest rates, reduces the pool of resources available to businesses. Many firms are prioritizing debt servicing over new investments, while households may face higher borrowing costs for consumption and mortgages.
“This dynamic poses challenges for Nigeria’s growth prospects,” said an independent economist. “While financing government operations is critical, sustained crowding out of the private sector could slow economic diversification and job creation.”
The CBN and policymakers face a delicate balancing act in managing fiscal pressures while ensuring that credit remains accessible to the productive sector. Observers note that addressing this imbalance may require debt management strategies, lower interest rates on government securities, and incentives for banks to lend to businesses.
With domestic borrowing projected to remain a key source of government funding, the trajectory of private sector credit will be closely monitored by economists and investors seeking signs of sustainable economic growth.
