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By Uche Usim
The Federal Government devoted nearly three-quarters of its total revenue to debt servicing in the first seven months of 2025, underscoring the mounting strain Nigeria’s debt obligations are exerting on public finances.
An analysis of the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper released by the Budget Office of the Federation shows that between January and July 2025, the Federal Government generated total revenue of N13.67 trillion. Within the same period, N9.81 trillion was spent servicing domestic and external debts, meaning 71.8 per cent of all revenue was absorbed by debt service alone.
When personnel costs for ministries, departments and agencies as well as government-owned enterprises are factored in, the fiscal pressure becomes even more pronounced. Personnel expenditure amounted to N4.51 trillion, pushing combined spending on debt service and wages to N14.32 trillion. This figure exceeded total revenue for the period, implying that debt servicing and salaries alone accounted for about 105 per cent of Federal Government income in the first seven months of the year.
Budget Office data shows that the revenue shortfall was driven largely by a sharp decline in oil earnings. Between January and July, oil revenue stood at N4.64 trillion, far below the pro rata target of N12.25 trillion. This translated into a shortfall of N7.62 trillion, or 62.2 per cent of expected oil receipts. Dividends from entities such as Nigeria Liquefied Natural Gas and development finance institutions also underperformed significantly, yielding just N104.64 billion compared with a projected N428.71 billion.
Some non-oil tax lines posted modest gains, offering limited relief. Company Income Tax generated N2.54 trillion, slightly above the pro rata estimate of N2.49 trillion, while Value Added Tax outperformed expectations, with the Federal Government’s share rising to N630.10 billion against a target of N567.54 billion, an increase of about 11 per cent. However, these improvements were outweighed by weaknesses in other revenue streams. Customs revenue declined to N988.29 billion, about 39.1 per cent below its N1.62 trillion target. Federation Account levies fell sharply by 70.1 per cent to N75.08 billion, while oil price royalties recorded no inflow during the period.
The MTEF noted that while VAT and the Electronic Money Transfer Levy provided some cushion, their overperformance was insufficient to offset the scale of oil revenue losses. Overall, aggregate revenue of N13.67 trillion fell far short of the pro rata target of N23.85 trillion, leaving a revenue gap of N10.19 trillion or 42.7 per cent in the first seven months of 2025.
On the expenditure side, total Federal Government spending, including government-owned enterprises and project-tied loans, stood at N20.40 trillion between January and July, compared with a pro rata target of N32.08 trillion, reflecting a shortfall of 36.4 per cent. Recurrent expenditure remained broadly on track, with actual spending of N15.68 trillion, just 3.7 per cent below the expected N16.28 trillion.
Within this, however, non-debt recurrent items were squeezed, coming in at N5.87 trillion, down 26 per cent from the N7.93 trillion anticipated.
Personnel costs for MDAs amounted to N3.91 trillion, about 11.7 per cent below target, while personnel expenses for government-owned enterprises matched the pro rata figure of N593.49 billion.
Pension and gratuity payments were particularly constrained, with only N445.67 billion released, barely half of the N842.34 billion expected.
In contrast, debt servicing overshot budget estimates. The Federal Government spent N9.81 trillion on debt service during the period, compared with a pro rata target of N8.35 trillion, representing an overshoot of 17.5 per cent. Domestic debt service rose to N4.65 trillion, exceeding projections by 10.9 per cent, while foreign debt service climbed to N5.07 trillion, 28.7 per cent above target. The sinking fund, however, recorded N96.70 billion, significantly below the N220.09 billion budgeted.
Capital expenditure bore the brunt of the fiscal strain. Total capital spending stood at N3.60 trillion, far below the pro rata budget of N13.67 trillion, translating to a shortfall of 73.7 per cent. Capital releases to MDAs were especially weak, with just N834.80 billion released out of a N10.81 trillion target. The Budget Office attributed the weak capital outturn partly to the extension of the 2024 budget, noting that about N2.23 trillion from the 2024 capital vote was still being financed in 2025 following the National Assembly’s approval to extend implementation to December.
The document recalled that in 2024, total debt service cost N13.12 trillion, equivalent to 77.5 per cent of Federal Government revenue. The 2025 figures indicate that debt servicing pressures remain elevated, continuing to crowd out capital investment and narrowing fiscal space for critical sectors such as health, education and infrastructure.
