By CSL Research
The Nigerian Senate has approved President Bola Tinubu’s request to secure over US$24bn in external financing to support the national budgets for 2025 and 2026.
According to a senior lawmaker, the funding package includes a combination of multilateral and bilateral loans, as well as grants, most of which are expected to be provided on concessional terms.
Nonetheless, there remains a possibility that the government could also tap the international capital markets.
The approved breakdown includes US$21bn in new external borrowings, €4bn in euro-denominated loans, ¥15bn (approximately US$102m), a US$65m grant, and an additional US$2bn in dollar-denominated borrowing from the domestic market.
Most of these funds are allocated to critical sectors, including infrastructure, agriculture, healthcare, education, water resources, and national security.
In addition, lawmakers approved a government plan to raise N757.98bn through domestic bond issuances to settle outstanding pension liabilities accrued up to December 2023.
This move reflects the Federal Government’s broader efforts to address longstanding fiscal arrears and enhance social welfare commitments.
The approved borrowing plan is expected to play a critical role in bridging the financing gap in the 2025 budget, thereby enabling the government to meet key expenditure obligations.
However, we maintain that it is unlikely the authorities will fully draw down on the entire facility within the current fiscal year.
We anticipate that the US$2bn dollar-denominated domestic borrowing will gain traction in the coming months, supported by the success of a similar issuance last year and strong demand for dollar-based instruments among local investors. Investment
Meanwhile, progress on other bilateral facilities remains ongoing. Last month, the Japan International Cooperation Agency (JICA) reaffirmed its commitment to provide the ¥15bn loan aimed at strengthening food security in Nigeria.
According to JICA, the delay in disbursement is due to pending clarifications regarding proposed changes to the project’s implementation framework.
It is worth mentioning that the recent GDP rebasing exercise revised the country’s debt-to-GDP ratio downward to approximately 39%, from an earlier estimate of 52% in 2024.
This adjustment has created some fiscal space for additional borrowing without immediately raising concerns about debt sustainability.
The updated ratio places Nigeria just below the 40% ceiling set by the Debt Management Office (DMO) and remains well below the International Monetary Fund’s (IMF) recommended threshold of 55%.
However, this lower ratio is largely a statistical revision and does not reflect any fundamental improvement in the country’s fiscal position.
Debt service as a proportion of government revenue remains high, and we estimate it could remain close to 70% this year.
This highlights the urgent need for comprehensive fiscal reforms focused on boosting revenue mobilisation.
In particular, accelerating the implementation of pending tax reform bills will be critical to improving tax compliance and enhancing the government’s capacity to finance its budget sustainably.
