Debt costs surge 164% as Nigeria spends more on T-Bills, bonds

Nigeria’s domestic debt service bill surged by 164 percent year-on-year in the first quarter of 2025, driven by sharp increases in interest payments on Treasury Bills and Federal Government bonds, according to data sourced from the Debt Management Office (DMO).

The DMO data disclosed that the federal government spent N2.6 trillion on domestic debt service between January and March, marking a 65 per cent increase from the previous quarter.

The rise, according to FBNQuest Merchant Bank, “reflects a recurring seasonal pattern, where debt obligations typically peak in the first quarter of the year due to a higher volume of debt issuances during this period, resulting in a front-loaded debt service profile.”

Treasury Bills were a key driver of the spike. The value of Nigerian Treasury Bills (NTBs) more than doubled to N961 billion, up from N374 billion in Q4 2024. This pushed their share of total domestic debt service to 36.8 per cent, from 23.7 perncent in the previous quarter.

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Interest payments on FGN bonds also rose substantially, accounting for 54 per cent of total debt service costs.

In absolute terms, bond payments increased by 47 per cent year-over-year to over N1.4 trillion, with regular bonds accounting for N1.3 trillion of that amount.

There was also an interest payment of almost N68 billion on FX-denominated domestic bonds during the quarter.

FBNQuest stated in a note to clients recently that “the upward trend in domestic debt servicing underscores the persistent fiscal strain faced by the government, largely stemming from continued revenue underperformance.”

The analysts warned that with Nigeria’s public debt still rising, interest payments are likely to remain a heavy burden on the federal budget.

“We expect interest payments to continue to consume a significant portion of the FGN’s revenue, potentially exerting mounting pressure on fiscal sustainability,” the report stated.

Africa’s top crude producer is currently grappling with a rising public debt that rose by N27.72 trillion to N149.39 trillion in one year, largely due to a weak naira that’s continued to balloon the country’s external obligations.

But the tide may begin to turn as authorities have signed the four landmark tax reform bills into law, expected to commence fully at the beginning of next year.

The move, according to analysts, will expand the Nigeria’s revenue base, moving the nation’s tax as a percentage of GDP from a paltry 10 per cent to 18 per cent, as well as cut borrowings.

However, FBNQuest cautioned that the impact would not be immediate, “primarily due to the scheduled implementation timeline, which defers the commencement of key measures until 2026.” [BusinessDay]