Nigeria’s Federal Government spent ₦7.7 trillion on debt interest payments in the first half of 2026, exceeding its ₦6.2 trillion revenue by approximately ₦1.5 trillion, according to the World Bank’s October 2026 Nigeria Development Update. The figures highlight mounting pressure on public finances even as foreign portfolio inflows strengthened foreign-exchange liquidity in September, providing support for the naira and reducing the Central Bank of Nigeria’s direct intervention.
Key Highlights
- Federal Government debt interest payments reached ₦7.7 trillion in the first half of 2026.
- Interest payments amounted to 124.2 per cent of federal revenue, which stood at ₦6.2 trillion.
- Total federal expenditure rose to approximately ₦16.1 trillion during the six-month period.
- Nigeria’s public debt stock reached ₦166.79 trillion at the end of June 2026.
- Foreign-exchange inflows through NAFEM stood at about $5.1 billion in September.
- Foreign inflows increased by 64 per cent month-on-month to approximately $3.1 billion, largely driven by portfolio investment.
- The Central Bank of Nigeria reduced its direct foreign-exchange sales by about 66 per cent to roughly $479 million.
Nigeria’s Debt Interest Exceeds Federal Revenue
The World Bank’s October 2026 Nigeria Development Update reported that the Federal Government’s debt interest payments rose to ₦7.7 trillion in the first half of the year, compared with ₦5.6 trillion during the corresponding period of 2025.
The increase of ₦2.1 trillion represents a year-on-year rise of 37.5 per cent, with high domestic borrowing costs identified as a major contributor to the growing interest burden.
Interest payments accounted for approximately 3.1 per cent of gross domestic product (GDP), compared with 2.5 per cent in the first half of 2025.
Although the interest-to-revenue ratio improved from about 155.6 per cent a year earlier to 124.2 per cent, interest payments continued to exceed the government’s total revenue.
This leaves less money available for infrastructure, healthcare, education, security and other public services after debt obligations are met.
Federal Revenue Rises to ₦6.2 Trillion
Despite the pressure from debt servicing, federal revenue increased significantly during the period.
Revenue rose by 72.2 per cent year-on-year, from ₦3.6 trillion in the first half of 2025 to ₦6.2 trillion in the first half of 2026.
The increase was supported by stronger oil receipts, improved corporate tax collections and higher independent revenues.
However, the growth in revenue was insufficient to cover the government’s interest obligations, underscoring the scale of the fiscal challenge.
Total federal expenditure reached approximately ₦16.1 trillion during the six months. Debt interest and personnel costs together accounted for about ₦11.9 trillion, equivalent to roughly 74 per cent of total spending.
The relatively large share committed to these obligations leaves a narrower margin for capital projects and other discretionary expenditure.
One analysis of the reported figures indicated that debt interest spending was approximately 11 times higher than capital expenditure during the period.
Nigeria’s Public Debt Reaches ₦166.79 Trillion
Nigeria’s public debt stock stood at ₦166.79 trillion as of the end of June 2026, according to the figures cited in the report.
The rising cost of servicing debt remains a major concern because the pressure on government finances depends not only on the total amount borrowed but also on interest rates, repayment terms and the revenue available to meet obligations.
The government’s fiscal position has improved in some respects following the removal of the petrol subsidy and foreign-exchange reforms introduced in 2023. Those measures were intended to reduce fiscal distortions and improve public revenue.
However, higher domestic interest rates have increased the cost of government borrowing, limiting the extent to which additional revenue can be redirected towards public investment.
The International Monetary Fund has separately projected that interest payments could absorb around 53 to 54 per cent of federal revenue for the full year 2026. That projection differs from the World Bank’s reported first-half ratio because it covers a different period and uses a separate assessment.
Debt Servicing Limits Spending on Development
The debt-interest burden has implications for government investment in infrastructure and social services.
When interest payments consume a large share of revenue, the government has less fiscal room to finance roads, electricity projects, hospitals, schools and other development priorities without additional borrowing or new revenue measures.
High borrowing costs can also make it more expensive for businesses to access credit, potentially affecting private investment and economic expansion.
Improving the situation will require sustained revenue growth, effective debt management and a reduction in borrowing costs over time. Expanding the tax base and improving revenue collection could also help reduce dependence on borrowing.
However, the pace at which these measures improve public finances will depend on economic conditions, policy implementation and the cost of servicing existing obligations.
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Foreign Portfolio Inflows Boost Nigeria’s FX Liquidity
While debt interest continued to weigh on public finances, foreign capital inflows supported Nigeria’s official foreign-exchange market in September 2026.
Data from FMDQ reportedly showed that total inflows through the Nigerian Autonomous Foreign Exchange Market (NAFEM) stood at approximately $5.1 billion, representing a marginal decline of 1.5 per cent from August.
Foreign inflows, however, rose by 64 per cent month-on-month to around $3.1 billion.
Foreign portfolio investment accounted for most of the increase, climbing to approximately $2.9 billion from $1.7 billion in August. Foreign corporate inflows also reportedly more than doubled.
In contrast, domestic inflows fell sharply to about $2.1 billion from $3.3 billion in the previous month.
The stronger foreign participation helped improve liquidity in the official market and coincided with a reduction in direct foreign-exchange sales by the Central Bank of Nigeria.
CBN Reduces Direct FX Sales by 66 Per Cent
The Central Bank of Nigeria reduced its direct foreign-exchange sales by approximately 66 per cent in September to about $479 million, according to the reported data.
The development suggests that foreign investors supplied a larger share of the foreign exchange available through the official market during the period, reducing the immediate need for central-bank intervention.
Attractive domestic yields and improved investor confidence have helped draw portfolio capital into Nigerian financial markets.
However, portfolio investment is generally more sensitive to interest-rate changes, exchange-rate expectations and shifts in global investor sentiment than longer-term investment in productive assets.
Foreign direct investment remained relatively low at approximately $11 million for the month, highlighting the difference between short-term financial inflows and longer-term commitments to businesses and infrastructure.
Nigeria’s FX Market Remains Exposed to Volatile Capital
The September figures demonstrate the importance of foreign portfolio flows to Nigeria’s foreign-exchange liquidity.
While these inflows can support market stability, they may reverse if domestic yields become less attractive or global financial conditions change.
The decline in domestic inflows and the low level of foreign direct investment also raise questions about the sustainability of relying heavily on short-term capital to meet foreign-exchange demand.
A more resilient external position would benefit from broader sources of foreign exchange, including non-oil exports, remittances, tourism and sustained investment in productive sectors.
Stronger foreign-exchange reserves and deeper domestic financial markets can provide additional buffers, but the composition and durability of capital inflows remain important considerations.
Debt Pressure and FX Liquidity Shape Nigeria’s Economic Outlook
Nigeria’s fiscal and foreign-exchange figures present two related challenges.
On one side, rising debt-interest payments continue to absorb more than the Federal Government’s revenue, restricting the resources available for capital investment and social programmes. On the other, foreign portfolio inflows have helped support official FX liquidity, although such flows can be volatile.
The revenue gains recorded since the 2023 economic reforms have not yet removed the pressure from debt servicing. Meanwhile, the recent increase in foreign capital inflows does not, by itself, guarantee a lasting improvement in foreign-exchange stability.
Sustained revenue mobilisation, disciplined borrowing, improved public spending efficiency and a broader base of foreign-exchange earnings will remain important to Nigeria’s economic outlook.
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