Rising Government Borrowing Crowds Out Nigeria’s Private Sector in 2025

By Otobong Gabriel,  Abuja 

Nigeria’s domestic financial system saw a sharp shift in 2025, with government borrowing surging while private sector credit contracted, highlighting growing imbalances in credit allocation.

Data from the Central Bank of Nigeria shows that the Federal Government’s domestic borrowing rose by N9.19 trillion in 2025, driven by Treasury bills, bonds, and direct bank loans to finance budget deficits and other obligations. 

In contrast, credit to the private sector fell by N1.54 trillion, reflecting tighter liquidity, high interest rates, and limited borrowing appetite among businesses.

Economists describe this as a “crowding-out” effect, where rising government demand for funds limits the availability of credit to productive sectors. 

Banks often prefer lending to government because it carries low risk and offers attractive returns, leaving businesses and households struggling to access affordable loans.

The manufacturing and industrial sectors have been particularly affected, with many firms reducing borrowing for expansion or raw material procurement.

Experts argue that this trend underscores the need for policy interventions that provide targeted, low-cost financing to stimulate private sector growth and investment.

High interest rates and fiscal pressures continue to shape Nigeria’s credit landscape. While government borrowing helps meet public obligations, the private sector’s limited access to finance could slow economic growth, job creation, and industrial development. 

Analysts recommend a combination of reduced government borrowing, lower interest rates, and stronger revenue generation to restore balance and promote a healthier financial system.

Bottom line: 

Without deliberate measures, rising government borrowing will continue to dominate the financial market, keeping private sector investment constrained and slowing Nigeria’s broader economic recovery.