•Tinubu
Nigeria’s public debt stock rose further to N166.8 trillion in the second quarter of 2026, driven largely by increased domestic borrowing as the Federal Government continued to finance its sizeable fiscal deficit, latest data from the Debt Management Office (DMO) has shown.
The debt stock, which covers obligations of the federal government, states and the Federal Capital Territory, increased by 5 per cent quarter-on-quarter and nine per cent year-on-year, underscoring the continued pressure on government finances despite improvements in foreign exchange stability and revenue prospects.
However, the rising debt stock has not translated into a breach of Nigeria’s established debt sustainability threshold.
According to the latest assessment, Nigeria’s debt-to-GDP ratio stood at about 38.7 per cent in 2025, well below the DMO’s 60 per cent sustainability limit.
The composition of the country’s debt portfolio also remained broadly stable during the period, with domestic debt accounting for 91.6 trillion, or 54.9 per cent, while external debt stood at N75.2 trillion, representing 45.1 per cent of total public debt.
The figures keep Nigeria’s debt structure almost exactly in line with the DMO’s preferred 55:45 domestic-to-external debt mix, a structure designed to balance the cost and risks associated with borrowing from local and international markets.
The latest debt profile, however, highlights the increasing reliance of the federal government on the domestic capital market to fund its financing requirements.
Domestic debt increased by 14 per cent year-on-year to N91.6 trillion, reflecting elevated government borrowing requirements amid the substantial fiscal deficit contained in the 2026 budget.
The federal government’s 2026 budget is estimated to carry a N31.5 trillion fiscal deficit, creating a significant financing gap that has continued to drive borrowing from the domestic market.
Analysts said the trend underscores the delicate balance facing the government as it seeks to finance infrastructure, recurrent expenditure and other budgetary obligations while containing debt-service pressures and maintaining fiscal sustainability.
A major factor helping to moderate the naira value of Nigeria’s external debt has been the relative stability and appreciation of the domestic currency.
Although Nigeria’s external debt stock increased significantly in dollar terms, the corresponding increase in its naira value was much smaller.
External debt rose by 16 per cent year-on-year to $54.5 billion, reflecting additional external borrowing. In naira terms, however, the stock increased by only five per cent to N75.2 trillion.
The divergence is largely attributable to movements in the exchange rate used in valuing the foreign-currency obligations.
The official exchange rate appreciated to N1,379.18/$ from N1,529.21/$ a year earlier, reducing the naira equivalent of the country’s dollar-denominated obligations.
This development has helped prevent exchange-rate movements from exerting additional pressure on Nigeria’s overall debt stock.
The relatively stable debt composition therefore masks an important shift in the underlying borrowing pattern, with domestic obligations growing more rapidly than external debt in naira terms.
This reflects the federal government’s continued use of the local debt market as a major source of financing, particularly at a time when fiscal requirements remain substantial.
The development also raises questions about the cost of domestic borrowing and its implications for private-sector access to credit, particularly if government borrowing continues to absorb a significant portion of available liquidity in the financial system.
