Despite gradual improvements in government revenue mobilisation, Nigeria’s rising debt servicing obligations are eroding fiscal flexibility and threatening the country’s medium-term economic sustainability, analysts have warned.
The analysts at Cowry Asset Management Company, in their review of the federal government’s amended 2025 budget performance for the first nine months of the year, noted that debt servicing had already consumed about 72 per cent of federally generated revenue, raising fresh concerns over the sustainability of the country’s fiscal position.
According to the report, although the federal government projected aggregate revenue of N49.8 trillion for the 2025 fiscal year, implying a pro-rata target of about N37.35 trillion by the end of September, actual revenue stood at only N17.1 trillion.
The figure represents a revenue performance of 45.8 per cent, leaving a shortfall of approximately N20.3 trillion against the nine-month benchmark.
Cowry Asset Management stated that while higher oil receipts, stronger tax administration and improved non-oil revenue collection supported sequential improvements in government earnings, the pace of revenue growth remained insufficient to meet the year’s ambitious target.
“The gains recorded in revenue collection have been overshadowed by escalating debt service costs,” the report stated, adding that the widening revenue gap “continues to limit fiscal flexibility while increasing the government’s dependence on borrowing to finance budget implementation.”
The analysts expressed concern over the growing debt burden, which has emerged as the biggest source of fiscal pressure. Total debt service payments rose to N12.3 trillion as of the third quarter, exceeding the budget benchmark of N10.4 trillion by 17.8 per cent.
The increase was largely driven by domestic debt obligations, with interest payments climbing to N9.3 trillion against a projected N5.4 trillion, representing an overrun of 72.6 per cent.
According to the analysts, the sharp rise in debt service costs reflects elevated domestic interest rates and the sustained high Monetary Policy Rate, which have significantly increased the cost of refinancing government securities.
Although foreign debt servicing remained below budget due to improved exchange rate stability, favourable payment scheduling and relatively lower external financing costs, Cowry Asset stressed that the current debt service trajectory leaves little room for developmental expenditure.
“This trajectory leaves limited room for developmental spending and heightens concerns over medium-term fiscal sustainability,” the report stated.
Cowry Asset Management also identified weak capital budget implementation as a major drawback in executing the 2025 budget.
Against a nine-month capital expenditure benchmark of approximately N17.5 trillion, actual releases stood at only N1.3 trillion, translating to an execution rate of just 7.3 per cent.
Similarly, releases to Ministries, Departments and Agencies (MDAs) amounted to only N619.4 billion compared to the expected N12.6 trillion.
The report noted that no disbursements had been made under project-tied multilateral loans, domestic project financing and external borrowing programmes, citing persistent delays in procurement, project approvals, financing drawdowns and implementation processes.
The analysts warned that prolonged weakness in capital expenditure poses significant risks to Nigeria’s medium-term growth prospects, given the critical role of infrastructure investment in boosting productivity, lowering business costs, attracting private investment and enhancing competitiveness.
While recurrent expenditure remained largely within budget expectations, the report observed that Government-Owned Enterprises (GOEs) recorded overhead spending about 35 per cent above projections, driven largely by inflationary pressures, higher utility bills, exchange-rate-related expenses, and rising operational costs.
It further revealed that more than N413 billion budgeted for service-wide votes and special intervention programmes remained undisbursed throughout the first three quarters of the year.
Looking ahead, the analysts identified continued dependence on crude oil revenues, elevated domestic interest rates, weak capital budget implementation, inflationary pressures and delays in multilateral loan disbursements as key risks to fiscal performance in the final quarter.
They maintained that improving budget execution would require accelerated capital releases, stronger non-oil revenue mobilisation and timely access to both domestic and external financing.
“Without meaningful progress across these fronts, the 2025 budget is likely to be remembered less for its historic size than for its limited execution and constrained impact on the real economy,” the analysts stated.
