Concerns As FG Plans To Spend More on Debt Servicing Than Capital Expenditures in Three Years

The New Diplomat
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By Abiola Olawale

As the Federal Government outlines its budgetary plans for the years 2025 to 2027, serious concerns are being expressed regarding the allocation of funds to designated areas.

This is as a substantial portion of the budget is reported to have been earmarked towards servicing existing debt, which is expected to surpass the amount designated for vital capital expenditures.

The New Diplomat reports that the Federal Executive Council (FEC), which was presided over by President Bola Tinubu, last week had approved the 2025 fiscal budget proposal as part of the Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper for 2025-2027 by the Fiscal Responsibility Act of 2007.

A breakdown of the recently approved 2025–2027 Medium-Term Expenditure Framework and Fiscal Strategy Paper shows that FG is projected debt servicing costs at N50.39 trillion for the three years, surpassing the N48.93 trillion earmarked for capital expenditures.

According to experts the escalating costs of debt servicing are becoming a pressing concern, with projections indicating an increase of 26.7%, rising from N15.38 trillion in 2025 to N19.49 trillion by 2027.

To put this in perspective, the Federal Government allocated N8.56 trillion for debt servicing in 2023. Consequently, the anticipated figure for 2027 would signify a worrying 127.7% surge within just four years, highlighting the growing burden of debt on the nation’s budget and its implications for economic health.

During the period in review, debt servicing will consume 34.06% of total annual expenditure, while capital expenditure growth remains sluggish, increasing by only 0.18% from N16.48 trillion in 2025 to N16.51 trillion in 2027.

A detailed analysis of the fiscal projections reveals that in 2025, it is anticipated that capital expenditure will represent 34.44% of the overall budget, a figure that slightly surpasses the 32.11% dedicated to servicing existing debt.

However, the outlook for 2027 paints a different picture. Debt servicing is expected to escalate sharply, consuming 37.2% of the total expenditure. In contrast, the share allocated for capital projects is projected to decrease to 31.51%.

Speaking on the debt servicing the MTEF/FSP document noted: “The provision for debt service will increase significantly due to the size of the country’s debt and higher interest rate on borrowing following several adjustments of the MPR to 27.25% as of September 2024. We will rely on the Debt Management Office (DMO) to provide a debt service projection once we estimate the financing gap for the 2025 Budget.

“Efforts will be geared towards promoting a debt restructuring strategy to free up resources for increasing government spending on critical infrastructure with the decline in household and private sector spending. Non-commercial long-term facilities with tenors ranging between 10 and 50 years, with a significant moratorium of 5 to 7 years will be explored.”

For 2026, debt servicing will rise slightly by 0.9% to N15.52 trillion, while capital expenditure will dip by 3.28% to N15.94 trillion.

By 2027, the gap might widen significantly as debt servicing costs could climb by 25.58% to N19.49 trillion, compared to a modest 3.58% increase in capital spending.

The New Diplomat reports that this comes after the Debt Management Office had severally raised concerns over Nigeria’s ballooning debt stock and servicing costs, warning that the current trajectory poses significant risks to fiscal stability.

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