Nigeria spends N16 trillion servicing debt in 2025

Nigeria's fiscal squeeze has reached a critical juncture. The country's total debt service obligations climbed to approximately **N16 trillion in 2025**, representing a sharp 22.9% year-on-year increase from N13.02 trillion in 2024, according to data from the Debt Management Office (DMO). This nearly N3 trillion surge underscores mounting pressure on government finances and signals intensifying competition for naira liquidity—a reality now reflected in aggressive Central Bank interventions.

## Why is Nigeria's debt service accelerating so rapidly?

The acceleration stems from two structural headwinds. First, domestic interest payments have risen sharply as the CBN's monetary tightening cycle—which saw the policy rate climb from 26.25% to 27.5% by end-2025—elevated borrowing costs across the yield curve. Second, Nigeria's external debt obligations remain elevated despite naira depreciation, which paradoxically increased the local currency cost of servicing dollar-denominated liabilities. Together, these forces created a debt service burden that now consumes an estimated 90%+ of government revenue, leaving minimal fiscal space for capital investment or social spending.

The Central Bank's response has been dramatic. **OMO sales surged to N18.79 trillion in Q1 2026**—a 426% jump from N3.57 trillion in the same quarter of 2025. Open Market Operations are the CBN's primary tool for mopping up excess liquidity and defending the naira. This five-fold increase signals that system liquidity remains structurally elevated despite the policy rate hikes, likely driven by external inflows seeking higher yields and unspent government revenues. Higher OMO repayments partially offset the new sales, moderating net liquidity withdrawal, but the scale of operations points to persistent monetary imbalances.

## What are the investment implications?

For fixed-income investors, the picture is mixed. Higher debt service payments and CBN tightening support elevated yields on medium- to long-term bonds (currently 18–22%), but rollover risk is building. If the government struggles to auction new bonds at sustainable rates—a real risk if external financing dries up—pressure on the naira could resurface. Equity investors should monitor banks closely: while higher rates boost net interest margins, rising non-performing loans and weakening consumer demand pose headwinds.

## How does this affect the naira and inflation trajectory?

The sheer magnitude of OMO sales hints that the CBN is fighting an uphill battle to stabilize the naira. Without decisive fiscal consolidation—spending cuts or revenue reforms—the central bank risks exhausting its policy firepower. Inflation, which ended 2025 above 34%, will likely remain sticky if the naira resumes depreciation. For diaspora investors and multinational corporates, this creates both currency hedging costs and long-term opportunity: a naira stabilized through genuine fiscal discipline could unlock significant upside.

The N16 trillion debt service bill is unsustainable without structural reform. Nigeria must prioritize revenue diversification beyond oil, subsidy elimination, and fiscal discipline—or face a ratings downgrade and tighter external financing.

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