Just in: Senate passes N68trn 2026 budget

Nigeria's Senate has approved a significantly expanded 2026 budget of N68 trillion (approximately €82 billion), representing a N9 trillion increase from the executive's initial N58 trillion proposal. This 15.5% upward revision signals intensifying fiscal pressures in Africa's largest economy and carries material implications for European investors with exposure to Nigerian equities, bonds, and currency markets.

The budget expansion reflects mounting political and economic pressures facing the Tinubu administration. While headline figures mask the underlying story—Nigeria's 2025 budget sits at approximately N71.3 trillion, making the 2026 figure a modest contraction—the Senate's willingness to add N9 trillion to the executive proposal demonstrates competing demands for public resources. Infrastructure projects, civil service wage expectations (following recent government salary increases), debt servicing obligations, and security operations in the northwest all vie for finite resources. The Senate's upward revision typically signals that key constituencies—including legislators themselves—view the initial proposal as insufficient to address constituency demands.

For European investors, this budget narrative intersects three critical variables: currency stability, inflation dynamics, and sovereign debt sustainability. Nigeria's naira has depreciated roughly 35% against the euro since 2021, driven partly by fiscal pressures and crude oil revenue volatility. A larger budget typically increases Nigeria's reliance on domestic borrowing (crowding out private sector credit) or external financing, both of which strain foreign exchange reserves and support further naira weakness. With Nigeria's external reserves hovering around $33-35 billion—equivalent to roughly 8-9 months of import cover—additional fiscal expansion without corresponding revenue improvements risks erosion of this buffer.

The revenue side remains Nigeria's Achilles heel. Non-oil tax collection remains chronically weak at approximately 6% of GDP, well below emerging market standards. While the Finance Minister has announced reforms targeting improved tax compliance, structural collection challenges persist. This means the N68 trillion budget will likely rely heavily on crude oil revenues, which averaged $85-90 per barrel in 2024 but carry geopolitical downside risk. Should global oil prices contract below $75 per barrel—a realistic scenario given renewable energy adoption and demand concerns—the budget faces significant implementation challenges, forcing either spending cuts mid-year or accelerated domestic borrowing.

Debt servicing remains the most critical constraint. Nigeria's debt service-to-revenue ratio has exceeded 90%, among the worst globally. Adding N9 trillion to expenditure without commensurate revenue increases almost certainly means higher domestic borrowing rates (pushing yields on Nigerian government bonds higher), which compounds future fiscal pressures and reduces private sector creditworthiness.

For European equity investors, the budget expansion creates mixed signals. It suggests continued government willingness to support domestic demand, benefiting consumer-facing sectors and construction firms. However, higher interest rates needed to finance expanded borrowing will pressure corporate earnings across the board. Bond investors face a familiar dilemma: higher yields on Nigerian debt reflect real default risk, not merely compensation for inflation.

The Senate's decision to expand rather than constrain the budget suggests Nigeria will continue its fiscal expansion trajectory through 2026, likely requiring further naira depreciation or external financing support, possibly from the IMF later in the fiscal year if oil revenues underperform.