The Federal Government’s domestic borrowings from financial market operators rose sharply in 2025 despite high interest rates, widening the gap between public and private sector access to credit, according to data obtained from the Central Bank of Nigeria (CBN) on Thursday.
An analysis of money and credit statistics showed that credit to the Federal Government outpaced private sector borrowings by ₦9.19 trillion, representing a 695.6 per cent swing in 2025, reflecting heightened fiscal pressures and increased reliance on local funding sources.
In contrast, net credit to the private sector declined by ₦1.543 trillion in 2025, highlighting the challenges faced by businesses amid tight monetary conditions and elevated interest rates. This divergence underscored a growing imbalance in the allocation of financial system resources, with the public sector absorbing a larger share of available liquidity.
The trend points to a classic crowding-out effect, as rising government demand for funds limits banks’ capacity to extend credit to the productive sector, while many organised businesses increasingly prioritise settling existing debts rather than taking on new borrowing.
In monetary and financial statistics, credit to the government refers to funds extended to the Federal Government by the domestic financial system, mainly through the purchase of government securities such as Treasury bills, bonds, and other debt instruments, as well as direct lending by banks and other financial institutions.
This form of credit is typically used to finance budget deficits, refinance maturing obligations, support capital and recurrent expenditure, and manage short-term cash flow gaps when government revenues fall short of spending needs.
Credit to the private sector, on the other hand, represents loans and advances granted by banks and other financial institutions to businesses, households, and non-government entities. It is primarily used to fund working capital, business expansion, investment in plant and machinery, trade, agriculture, services, and consumer spending. Growth in private sector credit is widely regarded as a key indicator of economic activity, as it supports production, job creation, and overall economic growth.
In practice, when government borrowing from the financial system rises sharply, especially in a high-interest-rate environment, it can reduce the pool of funds available for private sector lending, a phenomenon often described as crowding out. This dynamic can raise borrowing costs for businesses and slow investment, even as the government secures financing to meet its fiscal obligations.
An analysis of CBN money and credit statistics obtained showed that credit to the Federal Government rose by ₦9.192 trillion in 2025, while credit to the private sector declined by ₦1.543 trillion over the same period.
The data highlight intensifying concerns over crowding-out effects, as the government’s rising appetite for domestic funds coincided with shrinking credit to businesses and households.
The PUNCH
