Nigeria’s domestic debt servicing costs have ballooned dramatically, rising by 164% year-on-year in the first quarter of 2025 as the Federal Government ramps up spending on Treasury Bills and Federal Government bonds. According to the latest data from the Debt Management Office (DMO), the government spent ₦2.6 trillion on domestic debt servicing between January and March 2025, compared to ₦984 billion in Q1 of the previous year.
This marks a staggering 65% increase from Q4 2024 alone, further tightening fiscal space amid Nigeria’s growing revenue challenges and debt obligations. Analysts at FBNQuest Merchant Bank attribute the surge to Nigeria’s historical pattern of front-loading debt repayments in the first quarter, typically due to a higher volume of debt issuances during that period.
“The upward trend in domestic debt servicing underscores the persistent fiscal strain faced by the government, largely stemming from continued revenue underperformance,” FBNQuest said in a recent client note.
The key drivers of the surge were Treasury Bills (T-Bills) and Federal Government of Nigeria (FGN) bonds. Interest payments on Treasury Bills more than doubled to ₦961 billion in Q1 2025, compared to ₦374 billion in the preceding quarter. As a result, their share of the total domestic debt service increased to 36.8%, up from 23.7%.
Bond servicing also consumed a massive portion of the federal government’s expenditure. Interest payments on FGN bonds rose by 47% year-on-year, amounting to ₦1.4 trillion, with traditional bonds accounting for ₦1.3 trillion. An additional ₦68 billion was paid on FX-denominated domestic bonds, highlighting the government’s exposure to foreign exchange fluctuations.
Nigeria’s total public debt has reached alarming levels, rising by ₦27.72 trillion within a year to ₦149.39 trillion as of March 2025. Much of the increase is due to the depreciation of the naira, which has inflated the cost of Nigeria’s external debt portfolio. The weakening naira has had a ripple effect across government financing, investor confidence, and inflation management.
The implications are severe: interest payments alone now consume a significant portion of government revenue, crowding out funds for critical infrastructure, health, and education spending. FBNQuest warns this trend may persist unless urgent fiscal reforms are successfully implemented.
“We expect interest payments to continue to consume a significant portion of the FGN’s revenue, potentially exerting mounting pressure on fiscal sustainability,” the analysts stated.
In response to the fiscal crisis, Nigerian authorities have enacted four landmark tax reform bills, which are projected to increase tax revenue as a share of GDP from a meager 10% to 18%. The reforms are expected to broaden the country’s tax base and reduce the reliance on borrowing.
However, experts caution that the benefits may not materialize until 2026, due to a phased rollout of the new tax measures. Until then, Nigeria’s reliance on short-term borrowing instruments like T-Bills and domestic bonds may continue to weigh heavily on its budget.
As Africa’s largest economy and oil producer, Nigeria faces a critical fiscal crossroad. With domestic debt servicing now outpacing expectations and public debt nearing ₦150 trillion, pressure is mounting on policymakers to implement credible fiscal and monetary reforms. Until revenue generation significantly improves, the nation’s borrowing costs will remain a looming threat to economic stability and development.
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