The Nigerian Government has relied overwhelmingly on domestic borrowing through Federal Government bonds to finance its fiscal deficit in the first half of 2025, raising N6.10tn from the local debt market, while privatisation proceeds contributed just N64.92bn.
According to the Second Quarter 2025 Budget Performance Report released by the Budget Office of the Federation Nigeria’s total fiscal deficit for the first six months of 2025 stood at N5.70tn, lower than the half-year budget estimate, but underscoring the government’s continued dependence on debt rather than asset sales to fund spending gaps.
Specifically, in the second quarter, the government financed its N2.66tn fiscal deficit in the second quarter of 2025 largely through domestic borrowing of N2.80tn.
The report by Punch newspaper on Thursday showed that the figures indicated that domestic borrowing exceeded the size of the deficit, reflecting rollover pressures and the need to meet other financing obligations, while privatisation receipts remained marginal despite budgeted expectations.
Under the 2025 Fiscal Framework, the Nigerian Government had projected a quarterly fiscal deficit of N3.52tn, excluding Government-Owned Enterprises and project-tied loans.
The deficit was expected to be financed through a mix of N78.08bn in privatisation proceeds, N841bn in multilateral and bilateral project-tied loans, N460.92bn in foreign borrowing, and N2.14tn in domestic borrowing via FGN bonds.
However, actual fiscal performance in the second quarter showed a better-than-expected outcome. The inflow and outflow of funds resulted in a fiscal deficit of N2.66tn in Q2 2025, which was N865.14bn or 24.54 per cent below the prorated budget projection for the quarter.
The deficit-to-GDP ratio stood at 2.64 per cent, remaining within the three per cent threshold prescribed for Nigeria and under the ECOWAS convergence criteria, the report said.
Financing of the second-quarter deficit followed the same pattern as the half-year outturn, with N2.80tn raised through domestic borrowing and N7.76bn realised from privatisation proceeds, reinforcing concerns about the limited role of asset sales in reducing borrowing pressures.
The report read, “In the 2025 Fiscal Framework, quarterly fiscal deficit is estimated at N3.52tn (excl. GOEs and Project-tied Loan). The quarterly deficit is expected to be financed through earnings from Privatisation Proceeds of N78.08bn, Multi-lateral/Bi-lateral Project-tied Loan of N841.00bn, Foreign Borrowing of N460.92bn and domestic borrowing (FGN Bond) of N2.14tn.
“The inflow and outflow of funds for the Federal Government resulted in a fiscal deficit of N2.66tn in the second quarter of 2025. This was N865.14bn (24.54 per cent) lower than the prorated projected budget deficit for the quarter. The deficit to GDP ratio in the quarter under review stood at 2.64 per cent, which is within the 3 per cent threshold for the country and the ECOWAS convergence criteria.
“The deficit was financed through privatisation proceeds of N7.76bn and domestic borrowing (FGN Bond) of N2.80tn. Total deficit in the first half of the year amounted to N5.70tn, which was lower than the 2025 half-year estimated budget deficit. The deficit was financed through privatisation proceeds of N64.92bn and Domestic Borrowing (FGN Bond) of N6.10tn, respectively.”
Fiscal analysts have repeatedly warned that Nigeria’s heavy reliance on domestic borrowing could crowd out private sector credit and push up interest rates, particularly as debt service costs continue to rise.
The Budget Office noted that strengthening revenue mobilisation, accelerating privatisation programmes, and deepening fiscal reforms would be critical to reducing deficit financing pressures and improving medium-term fiscal sustainability.
Despite the narrower deficit, the report showed that debt service obligations remained elevated, with the Federal Government spending N4.44tn on debt servicing in the second quarter, further highlighting the growing pressure of debt costs on public finances.
The Budget Office noted that the economy grew by 4.23 per cent in the second quarter of 2025, an improvement attributed to ongoing fiscal and monetary stimulus measures, structural reforms, and government interventions aimed at stabilising key sectors of the economy.
It stated that efforts to resolve legacy challenges in crude oil production, deepen reforms across critical sectors, and improve fiscal governance remained central to sustaining the recovery.
“Improved fiscal management, revenue mobilisation, enhanced power supply, security of lives and property, as well as targeted interventions to protect vulnerable households and businesses, remain critical to economic recovery,” the report said.
GIK/APA