The Federal Government of Nigeria’s (FG’s) domestic borrowings surged sharply in 2025, crowding out private sector access to credit and weakening businesses’ ability to secure loans, according to data obtained from the Central Bank of Nigeria (CBN).

An analysis of money and credit statistics revealed that credit extended to the Federal Government outpaced that of the private sector by ₦9.19 trillion in 2025 — a significant shift compared with previous years. This represented a 695.6 per cent swing, highlighting intensified fiscal pressures and a growing reliance on local funding sources.

In contrast, net credit to the private sector declined by ₦1.543 trillion over the same period, underscoring the challenges faced by businesses amid tight monetary conditions and elevated interest rates.

Crowding‑Out Effect on Credit Allocation

The trend points to a classic crowding‑out effect, where rising government demand for funds reduces the pool of credit available for the productive sector. As a result, commercial banks and financial institutions are allocating more resources to government securities such as Treasury bills, bonds and other debt instruments, given their perceived lower risk and attractive yields.

Credit to the Federal Government — consisting of funds extended via direct loans and the purchase of government securities — is primarily used to finance budget deficits, refinance maturing obligations, support capital and recurrent expenditure, and manage cash‑flow shortfalls. Meanwhile, private sector credit represents loans granted to businesses, households and non‑government entities for working capital, expansion, investment and trade activities.

Experts say that when government borrowing accelerates sharply — especially in a high interest rate environment — it reduces the funds available for private sector lending, making loans more expensive and harder to obtain for businesses.

Statistical Breakdown and Trends

CBN data showed that credit to the public sector climbed from ₦25.03 trillion in January 2025 to ₦34.22 trillion in December, translating to a ₦9.19 trillion increase within the year. This also reflected a near 154 per cent rise compared with the government credit recorded in 2024.

In contrast, private sector credit experienced a net contraction, falling from ₦77.38 trillion in January to ₦75.83 trillion by December 2025. Although there were modest monthly fluctuations, this overall decline illustrates tight liquidity conditions and the impact of high borrowing costs on businesses.

Private Sector Implications

The slowdown in private sector credit has raised concerns among industry stakeholders, especially as businesses increasingly prioritise debt servicing over new investment. Some firms are repaying existing obligations rather than taking on fresh loans in a high‑cost borrowing environment.

Manufacturers, in particular, are feeling the strain. Recent statistics indicate a sharp decline in bank lending to the manufacturing sector, driven by elevated interest rates and rising operating costs, forcing many firms to cut back on debt or seek alternative funding sources.

Policy and Economic Outlook

Economic analysts argue that the current dynamic — where government borrowing absorbs a large share of domestic liquidity — could slow private sector growth, weaken investment, and dampen job creation. As Nigeria navigates ongoing fiscal and monetary reforms, the widening gulf between public and private sector access to credit is regarded as a key indicator of the financial system’s health and economic vitality.

Policymakers will need to balance government financing needs with strategies that ensure adequate credit flows to businesses, enhancing productivity, and supporting broader economic growth.