Fresh Central Bank of Nigeria (CBN) data released this week shows a sharp increase in federal government borrowing over the past year, while credit to businesses and households expanded only modestly.
The CBN said credit to the federal government climbed to N40.38 trillion in May 2026 from N22.99 trillion in May 2025 — a 75.6 per cent year‑on‑year increase. The bank also reported a month‑on‑month rise of N779.7 billion between April and May. Net domestic credit increased to N121.42 trillion over the same period.
By contrast, credit to the private sector — which covers loans to companies and households — rose only modestly to N81.04 trillion, remaining roughly double the stock of government borrowing in absolute terms but showing slower growth.
Economists and market observers say the divergence signals a crowding‑out effect, with banks favouring government securities over riskier commercial lending.
“When banks channel a large portion of available funds into Treasury bills and bonds, less credit is available for firms and consumers,” said an independent policy analyst. “That can slow investment and job creation, and over time constrain output.”
The shift also carries implications for inflation and interest rates. Government borrowing that is financed domestically can increase the effective money supply if the central bank accommodates funding needs or if liquidity is abundant, economists warn. More money chasing a given stock of goods tends to push prices up, particularly in food and transport — items that weigh heavily in household budgets.
The pattern of rapid public borrowing has raised concerns about partial monetisation of the fiscal deficit. Even with the CBN maintaining a tight monetary stance, heavy demand for domestic credit by the federal government can complicate efforts to rein in inflation. Higher demand for safe, liquid government paper also encourages banks to hold more sovereign debt, which offers attractive yields and perceived lower risk than commercial loans.
For the banking sector, the preference for government securities is understandable. Government instruments are generally viewed as low‑risk and often deliver reliable returns, especially when rates are elevated.
But that shift reduces banks’ incentives to expand lending to the real economy, analysts say, contributing to the sluggish growth in credit to firms and households.
Policymakers face trade‑offs. Increased fiscal spending financed by domestic borrowing may be used for essential public services, infrastructure and debt servicing. However, if not matched by improvements in production and supply, the result can be higher consumer prices and tighter financial conditions for private businesses.
Market participants will watch the CBN’s forthcoming statements and fiscal developments closely. Key indicators to monitor include the pace of private‑sector credit growth, Treasury yields, liquidity measures in the banking system, and monthly inflation readings. If private credit remains subdued while government borrowing grows, economists say Nigeria could see slower private investment, persistent price pressures, and upward pressure on interest rates.
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