By Chinwendu Obienyi
The Federal Government may turn decisively to the domestic debt market to raise an estimated N6.37 trillion, as challenges in accessing external financing including subdued Eurobond appetite and rising global borrowing costs tighten Nigeria’s external funding options.
This comes amid heightened global risk aversion, elevated interest rates, and increasing investor caution in international markets.
According to Cordros Research, an investment and research based firm, with the country having already mobilised N2.99 trillion through treasury bills and bonds, and with a planned $2.00 billion Eurobond issuance still pending, it may lean more heavily on local investors to plug a widening fiscal deficit.
“The move signals a continued shift away from previous dependence on Central Bank of Nigeria (CBN) overdraft financing, known as Ways and Means advances”, the firm said.
Under President Bola Tinubu’s administration, fiscal authorities have pledged to restore discipline to the public finance system by relying more on transparent, market-based borrowing instruments.
This is a significant policy shift that aims to improve credibility in public debt management and reduce inflationary risks associated with monetary financing. However, it will also test the depth of Nigeria’s domestic debt market and the capacity of investors to absorb increased supply”, Cordros Research said in its latest update.
Nigeria’s 2025 budget is facing mounting pressure due to underperformance in key revenue streams. Lower-than-expected oil prices averaging $67.72 per barrel between January and April, below the budget benchmark of $75.00 as well as oil production shortfalls, have weakened fiscal inflows.
Cordros projects total revenue for the year at N28.77 trillion, well below the official target of N41.81 trillion.
Consequently, the firm forecasts a full-year fiscal deficit of N16.47 trillion, including N3.80 trillion in project-tied loans and an estimated N312.33 billion in expected proceeds from privatisation. Excluding these one-off items, net borrowing requirements for 2025 are expected to reach N12.36 trillion.
So far, investor demand for government securities has remained relatively strong, although rising yields have increased borrowing costs. Currently, average treasury bill yields stand at 23.0 per cent, while bond yields average around 18.8 per cent, reflecting tight liquidity conditions and persistent inflationary pressures.
The firm projects a moderate decline in yields in the second half of the year, assuming the Monetary Policy Committee (MPC) initiates rate cuts in response to easing inflation, but warned that while domestic borrowing is preferable to external debt in terms of currency exposure and debt servicing terms, sustained high issuance could crowd out private sector access to credit and further elevate the government’s interest burden.
Nonetheless, the administration appears committed to deepening domestic capital market participation while improving the transparency of its fiscal operations.
The success of this strategy will hinge on market confidence, inflation trends, and the government’s ability to meet its revenue targets.