The Federal Government’s domestic borrowings from financial market operators rose sharply in 2025 despite high interest rates, widening the gap between public and private sector access to credit, according to data obtained from the Central Bank of Nigeria on Thursday.
An analysis of money and credit statistics showed that credit to the Federal Government outpaced private sector borrowings by N9.19tn, representing a 695.6 per cent swing in 2025, reflecting heightened fiscal pressures and increased reliance on local funding sources.
In contrast, net credit to the private sector declined by N1.543tn in 2025, highlighting the challenges faced by businesses amid tight monetary conditions and elevated interest rates. This divergence underscored a growing imbalance in the allocation of financial system resources, with the public sector absorbing a larger share of available liquidity.
The trend points to a classic crowding-out effect, as rising government demand for funds limits banks’ capacity to extend credit to the productive sector, while many organised businesses increasingly prioritise settling existing debts rather than taking on new borrowing.
The PUNCH reports that in monetary and financial statistics, credit to government refers to funds extended to the Federal Government by the domestic financial system, mainly through the purchase of government securities such as Treasury bills, bonds, and other debt instruments, as well as direct lending by banks and other financial institutions.
This form of credit is typically used to finance budget deficits, refinance maturing obligations, support capital and recurrent expenditure, and manage short-term cash flow gaps when government revenues fall short of spending needs.
Credit to the private sector, on the other hand, represents loans and advances granted by banks and other financial institutions to businesses, households, and non-government entities. It is primarily used to fund working capital, business expansion, investment in plant and machinery, trade, agriculture, services, and consumer spending. Growth in private sector credit is widely regarded as a key indicator of economic activity, as it supports production, job creation, and overall economic growth.
In practice, when government borrowing from the financial system rises sharply, especially in a high-interest-rate environment, it can reduce the pool of funds available for private sector lending, a phenomenon often described as crowding out. This dynamic can raise borrowing costs for businesses and slow investment, even as the government secures financing to meet its fiscal obligations.
An analysis of CBN money and credit statistics obtained showed that credit to the Federal Government rose by N9.192tn in 2025, while credit to the private sector declined by N1.543tn over the same period.
The data highlight intensifying concerns over crowding-out effects, as the government’s rising appetite for domestic funds coincided with shrinking credit to businesses and households.
According to the CBN data, credit to the public sector increased significantly in 2025, rising from N25.03tn in January to N34.22tn by December, translating to a N9.19tn increase within the year. It also represented an increase of N5.57tn, or nearly 154 per cent, compared with the N3.62tn government credit recorded in 2024.
A month-on-month breakdown revealed that government credit stood at N25.03tn in January 2025 before rising by N2.08tn, or 8.3 per cent, to N27.11tn in February. This was followed by a contraction of N2.52tn (9.3 per cent) in March to N24.59tn, and a further dip of N655bn (2.7 per cent) in April to N23.93tn. Borrowing eased again in May, falling by N946bn (4.0 per cent) to N22.99tn, and declined by another N1.33tn (5.8 per cent) in June to N21.66tn, marking the lowest level for the year.
Government credit rebounded in July, increasing by N2.03tn (9.4 per cent) to N23.69tn, before slipping by N740bn (3.1 per cent) to N22.95tn in August. The upward trend resumed in September, with credit rising by N1.21tn (5.3 per cent) to N24.16tn, followed by a N629bn (2.6 per cent) increase in October to N24.79tn. In November, borrowing grew further by N1.57tn (6.3 per cent) to N26.35tn, before surging sharply in December by N7.87tn, or 29.9 per cent, to close the year at N34.22tn.
In contrast, net credit to the private sector contracted by N1.54tn in 2025, reflecting tight liquidity conditions and elevated borrowing costs. Private sector credit declined from N77.38tn in January to N76.26tn in February, representing a N1.12tn or 1.4 per cent drop. This was followed by a marginal decline of N276bn (0.4 per cent) in March to N75.98tn.
Borrowing rebounded in April, rising by N2.09tn (2.7 per cent) to N78.07tn, before easing slightly by N100bn (0.1 per cent) to N77.97tn in May. Credit fell sharply in June by N1.84tn (2.4 per cent) to N76.13tn, but edged up in July by N598bn (0.8 per cent) to N76.72tn. August recorded another contraction of N841bn (1.1 per cent) to N75.88tn, followed by a steep decline of N3.36tn (4.4 per cent) in September to N72.53tn, the lowest point for the year.
Private sector credit recovered modestly in October, increasing by N1.88tn (2.6 per cent) to N74.41tn, and edged up by N220bn (0.3 per cent) in November to N74.63tn. In December, borrowing rose by N1.20tn (1.6 per cent) to close the year at N75.83tn, still well below the January level.
For context, government borrowing from the financial system increased by N3.62tn in 2024, far lower than the N9.19tn expansion recorded in 2025, while private sector credit grew by N1.54tn in 2024 but reversed into a contraction of N1.543tn in 2025.
A comparison of borrowing from the domestic financial system showed that government credit accelerated sharply in 2025 compared with 2024, beginning from January, when credit to the Federal Government rose to N25.03tn in 2025, up from N23.52tn recorded in January 2024.
In January, government credit stood at N25.03tn in 2025, up N1.51tn or 6.4 per cent from N23.52tn recorded in January 2024. By February, credit rose to N27.11tn, representing a sharp N8.69tn or 47.2 per cent increase compared with N18.43tn in February 2024.
However, in March, government borrowing moderated to N24.59tn, still N4.54tn or 22.6 per cent higher than N20.05tn in March 2024. In April, credit stood at N23.93tn, an increase of N3.96tn or 19.8 per cent over N19.98tn in April 2024.
In May, CPS declined year-on-year, falling to N22.99tn in 2025, which was N5.39tn or 19.0 per cent lower than the N28.38tn recorded in May 2024. The downward trend continued in June, with credit at N21.66tn, down N2.27tn or 9.5 per cent from N23.93tn in June 2024.
Government borrowing also trailed 2024 levels in July, standing at N23.69tn, which was N3.87tn or 19.5 per cent higher than July 2024’s N19.83tn, reflecting a rebound. In August, credit dropped sharply year-on-year to N22.95tn, a decline of N8.20tn or 26.3 per cent from N31.15tn in August 2024.
In September, CPS stood at N24.16tn, representing a steep N15.31tn or 38.8 per cent drop compared with N39.47tn recorded in September 2024. October followed a similar pattern, with government credit at N24.79tn, down N14.60tn or 37.1 per cent from N39.39tn in October 2024.
In November, credit rose to N26.35tn, but was still N13.26tn or 33.5 per cent lower than N39.62tn recorded a year earlier. By December, however, borrowing surged to N34.22tn, exceeding N27.14tn in December 2024 by N7.08tn or 26.1 per cent, driving the overall annual increase of N9.19tn in 2025.
Private sector borrowing showed a contrasting pattern. In January 2025, credit stood at N77.38tn, up N898bn or 1.2 per cent from N76.48tn in January 2024. However, in February, borrowing dropped to N76.26tn, a sharp N4.97tn or 6.1 per cent decline compared with N81.22tn recorded in February 2024.
In March, private sector credit stood at N75.98tn, N4.55tn or 6.4 per cent higher than N71.43tn in March 2024. April also recorded an increase, with credit rising to N78.07tn, up N5.15tn or 7.1 per cent from N72.92tn a year earlier.
By May, borrowing rose to N77.97tn, an increase of N3.66tn or 4.9 per cent over N74.31tn in May 2024. In June, credit stood at N76.13tn, up N2.94tn or 4.0 per cent compared with N73.19tn in June 2024.
The trend reversed in July, as credit eased to N76.72tn, marginally N1.22tn or 1.6 per cent higher than N75.51tn in July 2024. In August, borrowing declined to N75.88tn, N1.15tn or 1.5 per cent higher than N74.73tn in August 2024, indicating stagnation.
In September, private sector credit fell sharply to N72.53tn, down N3.31tn or 4.4 per cent from N75.83tn in September 2024. October followed with N74.41tn, a slight N339bn or 0.5 per cent increase over N74.07tn in October 2024.
In November, borrowing slipped to N74.63tn, N1.33tn or 1.8 per cent lower than N75.96tn in November 2024. By December, credit stood at N75.83tn, representing a N2.19tn or 2.8 per cent decline from N78.02tn recorded in December 2024, culminating in a N1.54tn net contraction for 2025.
OPS speaks
Commenting on behalf of the Organised Private Sector and the manufacturing industry, the Director-General of the Manufacturers Association of Nigeria, Segun Kadir Ajayi, said credit data from the financial system point to a clear crowding-out of private sector borrowing by government demand.
In a telephone interview on Thursday, Ajayi said the trend reflects the preference of commercial banks and other financial institutions to lend to government, given prevailing interest rates and perceived lower risk, to the detriment of productive sectors of the economy.
The MAN DG said, “The data is a trend that proves something. Usually when you see such trends, it is indicative of the private sector being crowded out in terms of borrowing. Because when you borrow, you would repay and so the rate at which you borrow is critical for your operations and when commercial banks and financial institutions find it a lot easier to lend to government rather than to the private sector.”
Ajayi noted that the manufacturing sector has been particularly affected, with many firms scaling back borrowing for expansion and raw material sourcing amid high costs and weak economic conditions.
According to him, the slowdown in private sector credit is consistent with the broader lack of economic buoyancy, including weak consumer demand and limited liquidity in the system.
“You also have discovered that the manufacturing sector has been challenged and so borrowing for expansion and raw material sourcing has been low keyed. So you would expect less credit because there has been no bouyancy in terms of purchases and in terms of the funds available. So you should expect this type of trend. Many manufacturers are simply not in a position to take on expensive credit,” he added.
He, however, said the development underscores the need for deliberate policy intervention to stimulate industrial growth through targeted financing.
“But what this means is that government should be intentional with about making low cost credit available to the sector, so that you can stimulate their appetite for borrowing and work to expand, scale and not working to pay the banks. This is just the simple explanation,” he advised.
Economist reacts
In his expert comment on the issue, Muda Yusuf, renowned economist and Chief Executive Officer of the Centre for the Promotion of Private Enterprise, warned that rising Federal Government borrowing from the domestic financial system is increasingly crowding out the private sector, as banks favour low-risk, high-yield government securities over lending to businesses.
Yusuf noted that while the private sector still accounts for a larger share of total outstanding credit in absolute terms, the direction of credit flow is a growing concern.
“The increase in credit to the government can be attributed to a number of factors. The government has been raising money to finance the deficit. So this financing of deficit has led to the issuance of bonds, treasury bills and so on, which banks also buy. The rate is also very attractive and it’s more attractive to them than to be lending to the real sector,” Yusuf said in a telephone conversation with our correspondent
According to him, the surge in government borrowing is largely driven by the need to finance widening fiscal deficits, which has translated into increased issuance of Treasury bills, bonds and other government securities. Yusuf noted that the prevailing interest rate environment has further tilted banks’ preference towards government instruments.
“The second point is that the risk of lending to government is extremely very low because it is a sovereign debt and government can’t come back to you and say they won’t pay back. It won’t happen. Except for those local contractors. But if it is through the financial system, they raise funds through government bonds. So the risk is low, rates are very attractive and the banks normally prefer this option because they are more comfortable,” he said.
He added that, unlike private sector lending, government borrowing through the financial system carries minimal default risk. “If it is through the financial system, funds are raised through government bonds. The risk is low, rates are attractive, and banks are more comfortable with that option,” Yusuf said. “Lending to the private sector is riskier for them.”
As a result, he said the private sector is increasingly unable to compete with the government for credit. “To that extent, you can say the government is gradually crowding out the private sector,” he stated. “They cannot compete with the government when it comes to credit. The risk for bonds is low, but the interest rate is high.”
Yusuf said this dynamic has intensified calls for the government to moderate its borrowing. On the private sector side, Yusuf pointed to persistently high interest rates as a major deterrent to borrowing and investment. He explained that while the government can raise funds by issuing bonds without negotiating loans with banks, private businesses face tougher conditions.
“There is a bit of crowding-out, and that’s why some people are arguing that government should borrow less, so that they don’t crowd out the private sector.
“The second point on the private sector side is that the interest rate is still high. So there is no business you can do with credit facilities of up to 30 per cent. The Monetary Policy Rate is still at 27 per cent. But for the government, they only have to issue bonds, they won’t have to meet banks for loans, only the state government meet government for loans and pays back through FAAC allocations. These are some of the issues,” he said.
Commenting on what declining private sector credit signals about the economy, Yusuf said it should be a major concern for policymakers.
“Of course, it indicates that something is not right in the economy. It should be a concern for the government, because with the interest rate at that level, how do you want to promote investment? It should be a concern. The private sector borrows to invest, so if it’s not there, it will affect growth. The government is only borrowing to finance the deficit.
“We want the banks to support the private sector more than they are doing now. You can also do some comparison with what other banking institutions are doing in other countries. You would observe that it is low compared to other countries. Our credit to the private sector compared to Gross Domestic Product shows the level of the financial system is supporting the sector,” he warned.
The economist also noted that Nigeria’s private sector credit levels remain weak compared to peer economies. On solutions, Yusuf said restoring balance in credit allocation would require a combination of lower interest rates, reduced government borrowing, and stronger revenue mobilisation.
He added that improved revenue generation would ease pressure on the financial system. “The only solution is to move the economy in a way that the interest rate is lower for borrowing. Recapitalisation can help to support big investment, but the interest rate has to come down. Inflation has to come down. The government should borrow less and focus on revenue, so the funds can go to the private sector,” Yusuf concluded.
The surge in government borrowing comes amid persistent fiscal pressures, including rising debt servicing costs, revenue shortfalls, and increased spending obligations following fuel subsidy reforms and exchange rate adjustments.
At the same time, the CBN’s tight monetary stance, anchored on elevated interest rates to rein in inflation, has raised the cost of borrowing across the economy, disproportionately affecting the private sector.
With inflationary pressures persisting and interest rates remaining high, stakeholders say a rebalancing of credit allocation will be critical to support growth, job creation, and industrial expansion.
As Nigeria navigates ongoing fiscal and monetary reforms, the widening gulf between public and private sector borrowing is expected to remain a key indicator of the health, or strain, within the financial system.
