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| World Bank |
Nigeria’s federal government paid ₦7.7 trillion in interest on its debts in the first half of 2026, a figure that surpassed its total revenue of ₦6.2 trillion and consumed 124.2 percent of earnings for the period.
The World Bank’s October 2026 Nigeria Development Update (NDU), titled Beyond the Federal Purse: How Higher Revenues Reshaped State Priorities, presents this as clear evidence that high domestic borrowing costs continue to dominate the fiscal landscape even as revenues recover.
Interest payments rose from ₦5.6 trillion in the corresponding period of 2025—an increase of ₦2.1 trillion, or about 37.5 percent—and climbed from 2.5 percent of GDP to 3.1 percent. Meanwhile, federal revenue improved markedly to ₦6.2 trillion (2.5 percent of GDP) from ₦3.6 trillion (1.6 percent of GDP) a year earlier. The gap left interest costs ₦1.5 trillion above everything the government collected between January and June.
The World Bank attributed the revenue gains to a recovery in oil receipts, stronger corporate tax collections, and higher independent revenues.
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Customs revenues held steady while VAT collections remained comparatively flat. Total federal expenditure reached ₦16.1 trillion (6.5 percent of GDP), up in nominal terms from ₦14.6 trillion (6.6 percent of GDP) but slightly lower as a share of the economy. The composition of that spending shifted noticeably: reported capital spending fell sharply to ₦0.7 trillion (0.3 percent of GDP) from 1.0 percent a year earlier, while personnel costs rose to ₦4.2 trillion from ₦3.7 trillion following wage adjustments, remaining stable at 1.7 percent of GDP. Other expenditure held at 1.3 percent of GDP. Combined interest and personnel costs alone absorbed roughly ₦11.9 trillion—about 74 percent of total spending and nearly twice revenue.
This means the government paid roughly 11 times more in interest than it reported spending on capital projects during the six months. The fiscal deficit narrowed somewhat—to about ₦9.9 trillion (4 percent of GDP) from ₦11 trillion (5 percent)—partly because of the lower reported capital outlays, a development the Bank cautioned should be interpreted carefully.
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Reforms Deliver Revenue Gains, But Debt Service Dominates at the Centre
The figures sit within a larger story of post-2023 macroeconomic reforms. Removal of the petrol subsidy, exchange-rate unification, and improved revenue administration lifted gross federation revenues by 69 percent in real terms between 2023 and 2025. States were the primary beneficiaries, seeing revenues rise about 93 percent in real terms over the period. Many used the extra resources to expand capital spending—up 151 percent in real terms—largely on roads, transport, agriculture, energy, and housing. Twenty-nine of 33 states with available data shifted priorities toward economic infrastructure, and real social spending per person rose in nearly all of them. Internally generated revenue grew in real terms in 31 of 35 states, and 21 states reduced their debt-to-GDP ratios between 2021 and 2025.
At the federal level, however, the picture is more constrained. Nigeria’s overall public debt was estimated around 40 percent of GDP in 2025 (roughly ₦177 trillion in some accounts), with projections pointing to a modest decline toward 38 percent in 2026. Domestic debt has long accounted for the larger share of interest payments because of higher local yields. In 2025, domestic obligations made up about 58 percent of the debt stock but generated nearly 73 percent of interest costs. High policy rates earlier in the cycle kept domestic borrowing expensive; the Central Bank of Nigeria’s later cuts (including a substantial reduction of the Monetary Policy Rate) have only begun to ease yields, and transmission to government financing costs remains gradual.
Public debt stock stood at about ₦166.8 trillion as of June 2026 according to Debt Management Office data, with the federal government accounting for the overwhelming majority. Per-capita debt calculations around that time placed the burden in the region of ₦700,000 per Nigerian. While the debt-to-GDP ratio remains moderate by many emerging-market standards after GDP rebasing, the interest-to-revenue ratio remains elevated and leaves limited fiscal space for development spending at the centre.
Structural Pressures and the Path Forward
The persistence of interest payments exceeding revenue underscores a classic fiscal bind. When debt service absorbs more than collected revenue, governments must either cut other spending, run larger deficits, or borrow further—often at the same high domestic rates that created the problem.
Capital expenditure is frequently the residual item that gets compressed. Low reported capital outlays in H1 2026 therefore raise questions about both fiscal reporting practices and the actual pace of infrastructure delivery at the federal level.
The World Bank’s broader assessment of the economy is more positive on growth and external balances. Real GDP expanded 4.2 percent in the first half of 2026, up from 3.9 percent a year earlier, driven mainly by services and a stronger contribution from agriculture. The current account surplus widened to about $12 billion (around 7 percent of GDP), supported by higher oil prices linked to Middle East tensions, though large net errors and omissions (–$12.4 billion) raised questions about unrepatriated oil proceeds.
External reserves strengthened, and the Bank projects average growth of about 4.4 percent through 2028 if reforms are sustained, with inflation easing gradually toward 12 percent and poverty beginning a slow decline. worldbank.org
Yet the report is clear that macroeconomic stabilisation alone is insufficient. States now have greater resources and have directed much of the increase toward economic infrastructure. The federal government, by contrast, remains heavily constrained by legacy debt dynamics and the high cost of domestic financing. The Bank recommends limiting expensive borrowing, prioritising concessional external finance where possible, and extending debt maturities to reduce refinancing risk.
It also stresses the need for continued revenue mobilisation, better budget credibility, and more efficient, accountable spending so that higher resources translate into improved services and living standards.
President Bola Tinubu’s administration has welcomed the NDU as confirmation that difficult reforms since 2023 are delivering results on growth, revenue, and external buffers. Officials have pointed to the stabilisation of the poverty rate for the first time since 2019 and the projected gradual decline as growth outpaces population. At the same time, the interest-revenue imbalance highlights unfinished business: converting stabilisation gains into fiscal space for investment and human capital at every level of government.
In short, the ₦7.7 trillion interest bill in the first half of 2026 is not merely a headline number. It illustrates the residual cost of years of deficit financing through high-yield domestic instruments, even as oil recovery and tax reforms improve the revenue base.
The contrast between rising state capital spending and compressed federal capital outlays is one of the more striking features of the latest NDU. Closing that gap—through cheaper financing, stronger non-oil revenues, and disciplined expenditure—will determine how quickly Nigeria can turn higher revenues into broader development outcomes.
Samuel O. Sulaimon is the founder and Editor-in-Chief of Naijapiz. He covers News, Sports, Finance, Faiths, Education, Technology.
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