FG Borrowing Crowds Out Private Sector as Government Credit Jumps N9.19tn in 2025

ByMoses Alamu2 hours Ago1 Mins read3

The Federal Government’s domestic borrowing from the financial system rose sharply in 2025 despite elevated interest rates, significantly widening the gap between public and private sector access to credit, data from the Central Bank of Nigeria have shown.

An analysis of CBN money and credit statistics revealed that credit to the Federal Government increased by N9.19tn in 2025, while net credit to the private sector declined by N1.54tn over the same period. This created a N9.19tn gap in favour of government borrowing, reflecting heightened fiscal pressures and growing reliance on local funding sources.

Credit to the Federal Government rose from N25.03tn in January 2025 to N34.22tn by December, driven largely by the issuance of Treasury bills, bonds, and other government securities used to finance budget deficits and manage cash flow shortfalls. In contrast, private sector credit fell from N77.38tn in January to N75.83tn in December, highlighting the impact of tight monetary conditions and high borrowing costs on businesses and households.

The divergence points to a classic crowding-out effect, where increased government demand for funds limits banks’ ability and willingness to lend to the productive sector. With interest rates remaining high, financial institutions have shown a preference for low-risk, high-yield government instruments rather than extending credit to businesses.

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The Director-General of the Manufacturers Association of Nigeria, Segun Ajayi, said the data clearly indicate that private sector borrowing is being crowded out, noting that manufacturers are scaling back expansion plans due to expensive credit and weak economic conditions. He called for deliberate policy measures to make low-cost financing available to stimulate industrial growth.

Similarly, economist and CEO of the Centre for the Promotion of Private Enterprise, Muda Yusuf, warned that rising government borrowing, combined with high interest rates, is undermining private investment. He urged the government to moderate its borrowing, improve revenue mobilisation, and create conditions for lower interest rates to restore balance in credit allocation.

Analysts say unless borrowing conditions ease, the imbalance could continue to constrain investment, job creation, and economic growth.