Fresh data from the Central Bank of Nigeria (CBN) reveals a sharp year-on-year increase in federal government borrowing, raising concerns as credit to the private sector grows at a much slower pace.
According to the CBN’s latest financial indicators, net credit to the federal government surged 75.6% year-on-year, climbing to N40.38 trillion in May 2024 from N22.99 trillion in May 2023. On a month-on-month basis, government borrowing rose by N779.7 billion from April, driving total net domestic credit in the economy to N121.42 trillion.
In contrast, credit to the private sector—which covers loans to businesses and households—grew modestly to N81.04 trillion. Although private sector credit remains double the size of government borrowing in absolute terms, its sluggish growth rate has sparked concern among economists.
Analysts warn this divergence indicates a “crowding-out” effect, where commercial banks increasingly favor risk-free government debt over lending to the real economy.
“When banks channel a large portion of available funds into Treasury bills and bonds, less credit is available for firms and consumers,” said an independent policy analyst. “This slows down private investment, hampers job creation, and ultimately constrains economic output.”
The surge in public borrowing also threatens to complicate the CBN’s ongoing battle against inflation. Economists warn that domestically financed government borrowing can expand the money supply, fueling inflation—especially in critical household sectors like food and transport.
Furthermore, analysts point to the risk of “partial monetization” of the fiscal deficit, where heavy government demand for credit dilutes the CBN’s tight monetary policy stance. High yields on sovereign debt make government papers highly attractive to commercial banks, reducing their incentive to issue riskier loans to the private sector.
While policymakers face the difficult task of balancing infrastructure funding and debt servicing, economists warn of the long-term trade-offs.
Market observers will be closely watching the CBN’s upcoming policy meetings, Treasury yields, and inflation data. If private sector credit remains subdued while public borrowing continues to climb, Nigeria could face a prolonged period of high interest rates, persistent inflation, and stifled private investment.
