By Chibuzor Alli
The Federal Government spent 11 times more on debt interest than on reported capital projects in the first half of 2026, as rising borrowing costs continued to constrain funds available for infrastructure and other development priorities.
Capital expenditure fell to N700bn between January and June 2026, equivalent to 0.3 per cent of gross domestic product, while interest payments climbed to N7.7tn, according to the World Bank’s October 2026 Nigeria Development Update, titled Beyond the Federal Purse: How Higher Revenues Shaped State Priorities.
The bank’s figures showed that interest payments exceeded the Federal Government’s N6.2tn revenue during the six-month period by N1.5tn, highlighting the pressure debt obligations continue to place on public finances despite stronger revenue collection.
The World Bank stated, “Interest payments increased to 3.1 per cent of GDP (N7.7tn) from 2.5 per cent (N5.6tn) amid high domestic borrowing costs.”
Interest payments rose by N2.1tn, or 37.5 per cent, from N5.6tn in the first half of 2025. However, the interest-to-revenue ratio improved from approximately 155.6 per cent to 124.2 per cent as government revenue increased more rapidly.
Revenue growth fails to ease debt pressure
Federal Government revenue rose by N2.6tn, or 72.2 per cent, from N3.6tn in the first half of 2025 to N6.2tn in the corresponding period of 2026.
The increase was supported by stronger oil receipts, improved corporate tax collections and higher independent revenues, while customs revenue remained stable and value-added tax collections were comparatively flat.
The World Bank stated, “Federal revenues rose to about 2.5 per cent of GDP (N6.2tn), from 1.6 per cent of GDP (N3.6tn) a year earlier, supported by a recovery in oil receipts, stronger corporate tax collections, and higher independent revenues, while customs revenues held stable and VAT collections stayed comparatively flat.”
Despite the revenue gains, total federal expenditure increased by 10.3 per cent, from N14.6tn to N16.1tn over the same period.
Personnel costs rose from N3.7tn to N4.2tn following wage adjustments. Combined interest and personnel expenditure reached N11.9tn, accounting for approximately 73.9 per cent of total federal spending and nearly twice the government’s revenue.
The figures illustrate how rising recurrent obligations can absorb additional revenue before it can be channelled into capital projects and public services.
World Bank cautions over spending pattern
The Federal Government’s fiscal deficit narrowed from N11tn, equivalent to five per cent of GDP, in the first half of 2025 to N9.9tn, or four per cent of GDP, in the corresponding period of 2026.
However, the World Bank cautioned that the improvement was partly associated with weak capital spending rather than a substantial reduction in recurrent obligations.
“The improved early-year fiscal outturn should be interpreted cautiously given the low reported federal capital spending,” the report stated.
It added, “Personnel and interest costs continue to absorb a large share of fiscal space, and a pickup in capital execution later in the year, alongside recurrent and pre-election spending, is expected to add to pressures.”
The bank also identified overlapping budget cycles, weak expenditure planning and poor alignment between approved allocations and implementation capacity as persistent weaknesses in fiscal management.
It warned that a recovery in capital spending later in the year, alongside other expenditure pressures, could make it more difficult to contain the deficit.
Domestic borrowing drives interest costs
Nigeria’s public debt stock reached approximately N177tn in 2025, equivalent to 40 per cent of GDP, compared with N67tn, or 27.6 per cent of GDP, in 2021.
The World Bank attributed much of the increase to exchange-rate valuation effects and the recognition of previously accumulated liabilities, including securitised Ways and Means advances.
Domestic debt accounted for 57.9 per cent of the country’s debt stock in 2025 but generated 72.6 per cent of interest payments, reflecting the relatively high cost of local borrowing.
The bank recommended limiting expensive borrowing, prioritising concessional financing and extending debt maturities to reduce refinancing risks.
It also projected that Nigeria’s consolidated fiscal deficit would widen from 3.1 per cent of GDP in 2025 to 3.5 per cent in 2026, partly because of rising federal interest, personnel and pre-election spending.
The World Bank urged the government to strengthen revenue mobilisation, improve budget credibility and maintain fiscal discipline to prevent debt obligations from further restricting development expenditure.
Leave a comment