Financial analysts have warned that Nigeria’s projected N20.12 trillion budget deficit for the 2026 fiscal year could significantly limit access to credit for businesses, as the Federal Government plans to rely heavily on domestic borrowing to fund the gap.
According to the 2026–2028 Medium-Term Expenditure Framework (MTEF), the government intends to finance about N14.30 trillion of the deficit, representing 71.1 per cent, through the domestic debt market.
Analysts say that while the local market may have the capacity to absorb the borrowing, the implications for interest rates and private sector financing could be severe.
Experts caution that large-scale government borrowing is likely to keep yields on government securities elevated, intensify competition for liquidity, and reduce the amount of credit available to corporates and small businesses.
Speaking on the development, founder of Okwudili Ijezie & Co, Blakey Ijezie, said the domestic market could absorb the proposed borrowing, but not without pressure. He noted that the scale of the borrowing remains unusually high by historical standards.
Similarly, the Chief Executive Officer of Highcap Securities, David Adonri, warned that absorption would come at the cost of higher yields rather than surplus liquidity, thereby increasing the risk of crowding out private-sector borrowers.
He added that companies seeking funding may be forced to borrow at rates significantly higher than government yields, making debt-financed growth increasingly difficult.
Analysts also linked the rising pressure on the domestic market to the federal government’s growing reliance on local borrowing, driven by persistent fiscal deficits, rising debt service costs and tighter conditions in the international debt market.
Data from the Debt Management Office shows that domestic borrowing rose from N2.34 trillion in 2021 to N8.58 trillion in 2024, with the trend expected to continue into 2026.
Market experts warned that sustained heavy borrowing by the government could push corporate borrowing rates as high as 25 to 30 per cent, particularly for small and medium-sized enterprises. This, they say, could weaken investment, slow economic growth and limit job creation.
They stressed that while domestic borrowing may help the government bridge its fiscal gap in the short term, prolonged pressure on local credit markets poses long-term risks to private sector activity and economic recovery.
