Nigeria’s Federal Government borrowing surged to N40.38 trillion in May 2026, raising concerns over reduced private sector lending and economic growth.
Federal Government Borrowing Records Massive 75.6% Annual Increase
Nigeria’s Federal Government significantly expanded its domestic borrowing over the past year, with new data from the Central Bank of Nigeria (CBN) revealing a sharp increase in credit extended to the government.
According to the latest figures, total credit to the Federal Government climbed from N22.99 trillion in May 2025 to N40.38 trillion in May 2026, representing an increase of N17.39 trillion, or 75.6% year-on-year.
The figures also show continued growth on a monthly basis. Government borrowing rose by N779.7 billion between April and May 2026, increasing from N39.60 trillion to N40.38 trillion within a single month.
Banks Continue to Increase Exposure to Government Debt
The latest CBN data suggests that commercial and merchant banks are allocating more funds to Federal Government securities, including Treasury Bills and government bonds.
This trend reflects the government’s continued reliance on domestic borrowing to finance budgetary obligations and other fiscal activities. Government securities are often viewed as lower-risk investments for banks, making them an attractive option during periods of economic uncertainty.
Private Sector Credit Records Slower Growth
While government borrowing expanded rapidly, lending to the private sector recorded only modest growth.
Private sector credit increased from N80.59 trillion in April 2026 to N81.04 trillion in May 2026, indicating a relatively slower pace compared to the government’s borrowing activities.
Although private businesses still account for nearly twice the amount of outstanding credit compared to the Federal Government, the widening gap in growth rates has attracted the attention of financial analysts.
Economists Warn of Potential Crowding-Out Effect
Economic experts have expressed concern that rising investment in government debt by banks could reduce the availability of affordable financing for businesses.
This situation, commonly referred to as the crowding-out effect, may limit access to credit for manufacturers, small businesses, and other private enterprises, potentially slowing investment, job creation, and overall economic growth.
Analysts say maintaining a healthy balance between government financing needs and private sector access to credit will remain important for sustaining long-term economic expansion.
Sectoral Lending Breakdown Still Pending
The Central Bank of Nigeria is yet to release a detailed breakdown showing how private sector credit was distributed across various industries during the reporting period.
Market participants are expected to monitor future releases for further insights into lending patterns across sectors of the Nigerian economy.
Key Highlights
- Federal Government credit rose from N22.99 trillion to N40.38 trillion in one year.
- Domestic borrowing increased by 75.6% year-on-year.
- Government borrowing grew by N779.7 billion between April and May 2026.
- Private sector credit increased modestly to N81.04 trillion.
- Economists caution that increased bank investment in government securities could limit credit available to businesses.
Frequently Asked Questions
Why did government borrowing increase?
The increase reflects the Federal Government’s continued use of domestic borrowing to finance fiscal operations and budgetary requirements.
What is the crowding-out effect?
It refers to a situation where increased government borrowing reduces the amount of credit available to private businesses, potentially slowing investment and economic growth.
Why is private sector lending important?
Private sector credit supports business expansion, job creation, production, and overall economic development.
Conclusion
The latest CBN figures highlight Nigeria’s growing dependence on domestic borrowing, with government credit rising sharply over the past year. While private sector lending continues to grow, its slower pace has raised concerns about the long-term impact on investment and economic expansion if banks continue to prioritize government securities.