Federal Government domestic borrowing rose by N9.19tn in 2025, crowding out private sector credit as businesses struggle with high interest rates, CBN data show

The Federal Government’s domestic borrowing from Nigeria’s financial system surged sharply in 2025 despite elevated interest rates, significantly widening the gap between public and private sector access to credit, according to data obtained from the Central Bank of Nigeria.

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An analysis of CBN money and credit statistics showed that credit to the Federal Government expanded by N9.19tn in 2025, while net credit to the private sector contracted by N1.54tn over the same period.

This created a credit gap of N9.19tn, representing a 695.6 per cent swing in favour of government borrowing, amid rising fiscal pressures and tighter monetary conditions.

The data highlight a growing imbalance in the allocation of financial system resources, with the public sector absorbing a larger share of available liquidity as businesses struggle under high borrowing costs.

In monetary and financial statistics, credit to government refers to funds extended to the Federal Government by the domestic financial system, largely through the purchase of Treasury bills, bonds and other government securities, as well as direct bank lending.

Such borrowing is typically used to finance budget deficits, refinance maturing obligations, fund capital and recurrent expenditure, and bridge short-term revenue shortfalls.

Credit to the private sector, by contrast, consists of loans and advances to businesses, households and other non-government entities, supporting working capital, investment, trade, agriculture, services and consumption.

Growth in private sector credit is widely seen as a key driver of economic activity, job creation and long-term growth.

The sharp rise in government borrowing in a high-interest-rate environment points to a classic crowding-out effect, where increased public sector demand for funds limits banks’ capacity to lend to businesses.

As a result, many firms have prioritised debt servicing over new borrowing, slowing investment and expansion.

According to the CBN data, credit to the public sector rose from N25.03tn in January 2025 to N34.22tn by December, translating to a N9.19tn increase within the year. This was significantly higher than the N3.62tn increase recorded in 2024.

A month-on-month breakdown showed volatile borrowing patterns, with government credit hitting a low of N21.66tn in June before rebounding sharply in the second half of the year.

December alone recorded a surge of N7.87tn, or 29.9 per cent, pushing total government credit to its highest level for the year.

In contrast, private sector credit declined from N77.38tn in January 2025 to N75.83tn in December, despite intermittent rebounds during the year.

The sharpest contraction occurred in September, when private sector credit fell to N72.53tn, reflecting tight liquidity conditions and persistently high interest rates.

For context, private sector credit grew by N1.54tn in 2024, but reversed into a contraction of N1.54tn in 2025, underscoring worsening financing conditions for businesses and households.

OPS reacts

Commenting on the data, the Director-General of the Manufacturers Association of Nigeria, Segun Kadir Ajayi, said the figures clearly show that government borrowing is crowding out private sector access to credit.

“The data is a trend that proves something. Usually when you see such trends, it is indicative of the private sector being crowded out in terms of borrowing,” Ajayi said in a telephone interview.

He explained that commercial banks prefer lending to government through high-yield, low-risk securities rather than extending credit to businesses, especially in the current high-interest-rate environment.

Ajayi noted that manufacturers have been particularly affected, with many firms scaling back borrowing for expansion and raw material sourcing due to weak demand and expensive credit.

“Many manufacturers are simply not in a position to take on expensive credit. Borrowing for expansion has been low-key because there is no buoyancy in purchases and limited funds available,” he said.

He called on the government to be deliberate in providing low-cost financing to stimulate industrial growth.

“Government should be intentional about making low-cost credit available to the sector so manufacturers can expand, scale and create jobs, rather than work mainly to repay banks,” he added.

Economist warns

Also reacting, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, warned that rising Federal Government borrowing from the domestic financial system is increasingly squeezing out the private sector.

“The government has been raising money to finance the deficit, leading to increased issuance of bonds and Treasury bills, which banks prefer to buy,” Yusuf said.

“The rates are attractive, and the risk is extremely low compared to lending to the real sector.”

He noted that while private sector credit still accounts for a larger share of total outstanding loans in absolute terms, the direction of credit flow is troubling.

“To that extent, you can say the government is gradually crowding out the private sector. Businesses cannot compete with government when interest rates are high and risk-free government instruments offer attractive returns,” Yusuf said.

Yusuf added that borrowing costs of up to 30 per cent are unsustainable for most businesses, discouraging investment and expansion. “With the Monetary Policy Rate at 27 per cent, how do you want to promote investment?” he asked.

He said declining private sector credit should be a major concern for policymakers, as it signals weak investment and slower economic growth.

According to him, restoring balance would require lower interest rates, reduced government borrowing, stronger revenue mobilisation and easing inflationary pressures.

“The government should borrow less and focus on revenue so that funds can flow to the private sector. Inflation must come down, interest rates must come down, and credit must support production,” Yusuf said.

The surge in government borrowing comes amid rising debt servicing costs, revenue shortfalls and increased spending pressures following fuel subsidy reforms and exchange rate adjustments.

Meanwhile, the CBN’s tight monetary stance aimed at curbing inflation has continued to raise borrowing costs across the economy.

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With inflation still elevated and interest rates high, analysts warn that without a rebalancing of credit allocation, Nigeria’s growth, job creation and industrial expansion could remain under pressure.