The Federal Government’s domestic borrowings from financial market operators rose sharply in 2025 despite high interest rates, widening the gap between public and private sector access to credit, according to data obtained from the Central Bank of Nigeria on Thursday.
An analysis of money and credit statistics showed that credit to the Federal Government outpaced private sector borrowings by N9.19tn, representing a 695.6 per cent swing in 2025, reflecting heightened fiscal pressures and increased reliance on local funding sources.
In contrast, net credit to the private sector declined by N1.543tn in 2025, highlighting the challenges faced by businesses amid tight monetary conditions and elevated interest rates. This divergence underscored a growing imbalance in the allocation of financial system resources, with the public sector absorbing a larger share of available liquidity.
The trend points to a classic crowding-out effect, as rising government demand for funds limits banks’ capacity to extend credit to the productive sector, while many organised businesses increasingly prioritise settling existing debts rather than taking on new borrowing.
Newsmen gathered that in monetary and financial statistics, credit to government refers to funds extended to the Federal Government by the domestic financial system, mainly through the purchase of government securities such as Treasury bills, bonds, and other debt instruments, as well as direct lending by banks and other financial institutions.
This form of credit is typically used to finance budget deficits, refinance maturing obligations, support capital and recurrent expenditure, and manage short-term cash flow gaps when government revenues fall short of spending needs.
Credit to the private sector, on the other hand, represents loans and advances granted by banks and other financial institutions to businesses, households, and non-government entities. It is primarily used to fund working capital, business expansion, investment in plant and machinery, trade, agriculture, services, and consumer spending. Growth in private sector credit is widely regarded as a key indicator of economic activity, as it supports production, job creation, and overall economic growth.
In practice, when government borrowing from the financial system rises sharply, especially in a high-interest-rate environment, it can reduce the pool of funds available for private sector lending, a phenomenon often described as crowding out. This dynamic can raise borrowing costs for businesses and slow investment, even as the government secures financing to meet its fiscal obligations.
An analysis of CBN money and credit statistics obtained showed that credit to the Federal Government rose by N9.192tn in 2025, while credit to the private sector declined by N1.543tn over the same period.
The data highlight intensifying concerns over crowding-out effects, as the government’s rising appetite for domestic funds coincided with shrinking credit to businesses and households.
According to the CBN data, credit to the public sector increased significantly in 2025, rising from N25.03tn in January to N34.22tn by December, translating to a N9.19tn increase within the year. It also represented an increase of N5.57tn, or nearly 154 per cent, compared with the N3.62tn government credit recorded in 2024.
A month-on-month breakdown revealed that government credit stood at N25.03tn in January 2025 before rising by N2.08tn, or 8.3 per cent, to N27.11tn in February. This was followed by a contraction of N2.52tn (9.3 per cent) in March to N24.59tn, and a further dip of N655bn (2.7 per cent) in April to N23.93tn. Borrowing eased again in May, falling by N946bn (4.0 per cent) to N22.99tn, and declined by another N1.33tn (5.8 per cent) in June to N21.66tn, marking the lowest level for the year.
Government credit rebounded in July, increasing by N2.03tn (9.4 per cent) to N23.69tn, before slipping by N740bn (3.1 per cent) to N22.95tn in August. The upward trend resumed in September, with credit rising by N1.21tn (5.3 per cent) to N24.16tn, followed by a N629bn (2.6 per cent) increase in October to N24.79tn. In November, borrowing grew further by N1.57tn (6.3 per cent) to N26.35tn, before surging sharply in December by N7.87tn, or 29.9 per cent, to close the year at N34.22tn.
In contrast, net credit to the private sector contracted by N1.54tn in 2025, reflecting tight liquidity conditions and elevated borrowing costs. Private sector credit declined from N77.38tn in January to N76.26tn in February, representing a N1.12tn or 1.4 per cent drop. This was followed by a marginal decline of N276bn (0.4 per cent) in March to N75.98tn.