Federal finances under strain as debt costs swallow revenues 

When President Bola Tinubu swept away Nigeria’s petrol subsidy and allowed the naira to float shortly after taking office in 2023, the reforms were framed as a painful but necessary reset.

The government argued the measures would unlock trillions of naira previously trapped in distortionary policies, restoring fiscal breathing room and funding long-delayed infrastructure.

Two years later, the picture emerging inside Abuja’s finances is far more complicated.

While Nigeria’s state governments have seen revenues surge — flush with higher allocations from the Federation Account and embarking on new capital projects — the federal government itself is struggling to fund even its most basic investment plans.

Read also: Senate says borrowing unavoidable, bars budget rollovers, targets electricity subsidy removal

Evidence from the government’s most recent budget implementation report suggests a treasury under mounting pressure, where debt servicing and recurrent spending are consuming much of the available revenue.

The federal government has also not published a budget implementation report since the second quarter of 2025, a gap that has fuelled growing concern among analysts about the state of public finances.

The last available report showed that between April and June 2025, aggregate federal government revenue stood at N5.23 trillion, barely half of the N9.5 trillion prorated target set by the budget office.

Oil revenues, long the backbone of Nigeria’s public finances, were the most significant disappointment. They reached N1.5 trillion, a staggering 72 per cent below the N5.2 trillion projected for the quarter.

Non-oil revenues, by contrast, performed strongly. Improved collections from company income tax and value-added tax helped generate N8.90 trillion, exceeding expectations.

But the shortfall in oil income quickly translated into tighter spending.

The most visible casualty was capital investment.

Capital releases to ministries, departments and agencies amounted to just N394 billion, less than 10 percent of the quarterly target of N4.6 trillion.

What initially appeared to be a temporary mismatch now looks more like a persistent liquidity squeeze.

During recent budget defence sessions at the National Assembly, senior ministers described an increasingly strained fiscal environment in which even approved spending struggles to materialise.

Muhammad Ali Pate, minister of health and social welfare, told lawmakers that his ministry had received only N36 million from a N218 billion capital allocation for the 2025 fiscal year, a release rate of 0.016 per cent.

Read also: Borrowing without transformation: Nigeria’s debt–productivity paradox

Personnel costs had been fully paid, he said, but capital spending had stalled because of cash-flow constraints and delays under the federal government’s bottom-up cash planning system, administered by the Office of the Accountant-General.

The consequences extend beyond the treasury.

Pate noted that delays in Nigeria’s counterpart funding for donor-supported health programmes had prevented the ministry from unlocking additional external financing, further complicating the implementation of health projects.

Similar complaints echoed across other ministries.

During hearings on the 2026 appropriation bill, several agency heads told lawmakers that capital releases remained abysmally low, forcing them to defer projects, accumulate liabilities and operate well below their approved budgets.

The disconnect has unsettled legislators, who have questioned how reported improvements in revenue could coexist with widespread funding shortages across government agencies.

Olubunmi Tunji-Ojo, minister of interior, told lawmakers that the ministry had received little to no capital releases in recent fiscal cycles, undermining infrastructure upgrades across the country’s paramilitary services.

The solid minerals ministry painted an equally stark picture.

Members of the Joint National Assembly Committee on Solid Minerals Development said that despite significant appropriations, no capital funds had been released to the ministry in 2025, while only 50 per cent of its overhead allocation had been disbursed by January 31, 2026.

Dele Alake, minister of solid minerals development, warned lawmakers that the N865 billion earmarked for capital spending in 2025 had yet to be released, leaving critical exploration and infrastructure projects stalled.

Without granting the sector first-line charge status, which guarantees automatic statutory releases from the federation account, Alake said the ministry would remain vulnerable to treasury delays and funding shortages.

Across the cabinet, similar complaints have surfaced from transportation to women’s affairs, revealing a government where capital programmes exist largely on paper.

Read also: Debt service crowds out Nigeria’s growth ambitions

Economists warn that the implications stretch beyond bureaucratic inconvenience.

Nigeria’s economy expanded 3.87 per cent in 2025, the fastest pace in three years, but still far below what is required to lift millions out of poverty.

President Tinubu has set an ambitious 8 per cent growth target for his administration. Economists say Nigeria would need sustained growth of between 8 to 10 percent to reverse rising poverty, worsened in recent years by a cost-of-living crisis triggered by currency depreciation and higher petrol prices.

Some officials and market participants have speculated that part of the revenue expected to reach the federal treasury may be flowing into a separate account known as the Renewed Hope Fund. Sources within the finance ministry say they are unaware of such an account.

What the available data does show is a government increasingly squeezed between debt obligations and routine expenditure.

During the second quarter of 2025, non-debt recurrent spending reached N2.72 trillion, while debt servicing climbed to N4.44 trillion, exceeding projections by 24.1 percent, largely because of rising domestic borrowing costs.

Interest rates have climbed sharply as the CBN tightens monetary policy to combat inflation, pushing up the cost of servicing government debt. Nigeria’s benchmark interest rate more than doubled from 11.5 percent in early 2022 to a peak of 27.5 percent by 2025, driven by aggressive tightening to fight inflation. As of February 2026, the CBN reduced the rate to 26.5% following 11 consecutive months of declining inflation.

The Tinubu administration has also ended the central bank’s controversial Ways and Means financing, which previously allowed the government to borrow directly from the monetary authority.

The result is a far more constrained fiscal environment.

After servicing debt and paying salaries, officials acknowledge that little remains for investment in infrastructure, which is the very spending the government had hoped its reforms would enable.

In response, the administration has begun tightening the way oil revenues are collected.

Read also: Beyond subsidy removal: Nigeria’s broken oil covenant

Executive Order 9 now requires all oil revenues to be paid directly into the federation account in an attempt to curb collection costs at the Nigerian National Petroleum Company Ltd.

Analysts argue similar scrutiny should be applied to revenue-collection fees across government agencies, including the Federal Inland Revenue Service, to free up more cash for the treasury.

For now, however, Nigeria’s federal finances remain caught in an uncomfortable paradox.

Reforms that were meant to strengthen public finances have reshaped the fiscal landscape, but the federal government itself appears to be the one institution still struggling to find its footing.