Onome Amuge
President Bola Tinubu has repeatedly declared that his administration has met its 2025 revenue targets and curtailed borrowing. However, newly published budget data show a federal government whose income has been overwhelmed by debt servicing and payroll costs, leaving little room for investment and forcing capital spending into retreat.
An analysis of the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF), released this week by the Budget Office of the Federation, reveals that in the first seven months of 2025 the federal government generated N13.67 trillion in aggregate revenue. Over the same period, it spent N14.32 trillion on servicing domestic and foreign debt, and paying salaries and wages across ministries, departments, agencies and government-owned enterprises. In effect, debt service and personnel costs alone absorbed about 105 per cent of total federal revenue.
For investors, lenders and multilateral partners, the figures indicate the fragility of Nigeria’s fiscal position and the limited traction so far of efforts to rebalance public finances away from oil dependence and debt accumulation. They also raise uncomfortable questions about the sustainability of the government’s policy agenda at a time when economic reform has already imposed high social costs.
Between January and July, the federal government fell short of its pro rata revenue target by N10.19 trillion, a gap of nearly 43 per cent. This shortfall sits uneasily alongside Tinubu’s claim, made in September, that Nigeria had already met its revenue target for the year by August and would no longer need to borrow to fund its budget. The MTEF numbers do not corroborate that assertion.
The primary culprit remains oil. Despite the government’s stated ambition to build a more diversified revenue base, hydrocarbon receipts continue to dominate fiscal outcomes. Oil revenue in the first seven months of 2025 amounted to N4.64 trillion, barely 38 per cent of the N12.25tn pro rata target. The resulting N7.62 trillion shortfall accounted for the bulk of the revenue gap.
Other oil-linked inflows also disappointed. Dividends from entities such as Nigeria Liquefied Natural Gas and development finance institutions delivered just N104.64 billion, compared with an expected N428.71 billion. Royalties tied to oil prices recorded no inflow at all during the period, highlighting the extent to which upstream underperformance has rippled through public finances.
On a positive note, company income tax receipts slightly exceeded expectations, reaching N2.54 trillion against a prorated target of N2.49 trillion, while value added tax collections outperformed by about 11 per cent. These gains point to the resilience of parts of the non-oil economy and the benefits of tax administration reforms. But they were insufficient to offset the collapse in oil revenue and weaknesses elsewhere, including customs receipts, which fell nearly 40 per cent short of target, and federation account levies, which dropped by more than 70 per cent.
The result is a revenue mix that is marginally less oil-dependent but still highly vulnerable. As the MTEF puts it, Nigeria remains fiscally exposed to oil sector underperformance even as non-oil revenue sources gradually increase their contribution.
On the spending side, the most striking feature is not profligacy but rigidity. Total federal expenditure in the first seven months reached N20.40 trillion, well below the prorated budget of N32.08 trillion. Yet the cuts have fallen overwhelmingly on investment rather than on recurrent obligations. Recurrent spending came in close to plan, missing its target by just 3.7 per cent, while capital expenditure collapsed to barely a quarter of what had been budgeted for the period.
Debt service alone consumed N9.81 trillion in the seven months to July, overshooting its prorated budget by 17.5 per cent. Foreign debt service was especially heavy, coming in almost 29 per cent above target, a reminder of the pressure that currency depreciation has placed on Nigeria’s external obligations. Even as the government has sought to reduce new borrowing, the legacy of past deficits, and the rising cost of servicing them, continues to squeeze fiscal space.
Personnel costs added another N4.51 trillion, bringing the combined bill for debt and wages to levels that effectively crowd out other priorities. Pensions and gratuities were sharply underfunded, overheads for ministries were slashed, and service-wide votes saw cuts of more than 90 per cent.
The implications for public investment are severe. Aggregate capital expenditure for the first seven months of the year was just N3.60 trillion, compared with a prorated budget of N13.67 trillion, a shortfall of nearly 74 per cent. Spending by ministries and agencies on capital projects was particularly worrisome as only N834.80 billion was released against a target of N10.81 trillion. In practical terms, this means that roads, power projects, schools and hospitals planned for 2025 have barely moved beyond the drawing board.
The debt burden looms over all of this. In 2024, debt service absorbed 77.5 per cent of federal revenue; in the first seven months of 2025, it has already reached nearly 72 per cent. While Nigeria’s debt-to-GDP ratio remains moderate by international standards, its revenue base is exceptionally narrow, making servicing costs disproportionately heavy.
For markets, the concern is less about imminent default than about opportunity cost and policy credibility. When virtually all revenue is pre-committed to past obligations and payroll, the state’s capacity to invest, to respond to shocks or to support reform is severely constrained. That in turn undermines confidence in medium-term growth prospects and complicates efforts to attract private capital.
Politically, the numbers pose a challenge for an administration that has staked its legitimacy on economic reform. The removal of fuel subsidies, exchange rate liberalisation and tax reforms were sold as painful but necessary steps to restore fiscal health. Yet the MTEF data show that, so far, the payoff has been elusive. Revenues are underperforming, debt service is rising, and capital spending is being deferred.
This tension between reform narrative and fiscal reality may become more pronounced as the government prepares its next budget cycle. With limited room to cut recurrent spending and little appetite for new borrowing, policymakers face hard choices of raising taxes more aggressively, accelerating asset sales, renegotiating debt terms, or accepting continued underinvestment.
The MTEF itself acknowledges the constraints, warning that high servicing costs and limited fiscal space are crowding out spending on health, education and infrastructure.
