The Federal Government’s domestic borrowing from banks and financial market operators rose sharply in 2025 despite high interest rates, widening the gap between public and private sector access to credit, according to Central Bank of Nigeria (CBN) data obtained on Thursday.
Analysis of money and credit statistics showed that credit to the Federal Government increased by N9.19 trillion last year, outpacing private sector borrowing by 695.6 per cent, reflecting mounting fiscal pressures and reliance on domestic funding sources. In contrast, net credit to the private sector fell by N1.543 trillion, highlighting the challenges businesses face amid tight liquidity and elevated borrowing costs.
The trend points to a crowding-out effect, as government demand for funds limits banks’ capacity to lend to businesses, forcing many companies to prioritize debt repayment over new investment.
Credit dynamics explained
CBN statistics define government credit as funds extended to the Federal Government through the purchase of Treasury bills, bonds, and other debt instruments, as well as direct bank lending, used to finance deficits, refinance maturing obligations, and cover capital and recurrent expenditures.
Private sector credit represents loans and advances to businesses, households, and non-government entities, funding working capital, expansion, trade, agriculture, and consumer spending. Growth in private sector credit is widely regarded as a key driver of economic activity.
When government borrowing rises sharply, especially in a high-interest-rate environment, funds available for private sector lending shrink, raising borrowing costs for businesses and slowing investment.
Year-on-year trends
Credit to the Federal Government rose from N25.03 trillion in January to N34.22 trillion in December 2025, marking a N9.19 trillion increase. In contrast, private sector credit declined from N77.38 trillion in January to N75.83 trillion in December, a net contraction of N1.543 trillion.
Monthly CBN data showed fluctuations in government credit, with notable spikes in February (+N2.08tn) and December (+N7.87tn), while the private sector experienced sharp declines in June (-N1.84tn) and September (-N3.36tn), reflecting tight monetary conditions and high borrowing costs.
Compared with 2024, government credit surged more sharply in 2025, while private sector borrowing shifted from growth (+N1.54tn in 2024) to contraction, underlining the intensifying crowding-out effect.
Industry concerns
Speaking on behalf of the Organised Private Sector and manufacturers, the Director-General of the Manufacturers Association of Nigeria (MAN), Segun Kadir Ajayi, said the data confirm that government borrowing is limiting credit availability for businesses.
“Commercial banks and financial institutions prefer lending to the government because of lower risk and attractive interest rates, leaving the private sector constrained. Many manufacturers have scaled back borrowing for expansion and raw materials due to high costs and limited liquidity,” he said.
Ajayi stressed the need for targeted policies to stimulate private sector investment and low-cost financing.
Economists weigh in
Economist Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, said rising government borrowing is gradually crowding out the private sector, as banks favor low-risk, high-yield government securities over business loans.
“Government borrowing is largely to finance deficits through Treasury bills and bonds. Private sector lending carries higher risk, especially with interest rates above 27 per cent, so banks naturally prefer government instruments,” Yusuf explained.
He warned that the imbalance limits private sector investment, slows economic growth, and risks weakening industrial expansion. Yusuf recommended a combination of lower interest rates, reduced government borrowing, and stronger revenue mobilization to restore balance and support private sector credit.
Implications for the economy
The surge in government borrowing reflects ongoing fiscal pressures, including rising debt servicing costs, revenue shortfalls, and increased spending obligations following subsidy reforms and exchange rate adjustments.
At the same time, the CBN’s tight monetary policy, designed to curb inflation, has raised borrowing costs, disproportionately affecting businesses. Analysts say that rebalancing credit allocation is critical for economic growth, job creation, and industrial expansion, as Nigeria navigates fiscal and monetary reforms.
The widening gap between public and private sector borrowing is now a key indicator of the strain within Nigeria’s financial system and a warning signal for policymakers aiming to stimulate sustainable economic growth.
