Borrowings by the federal government in 2025 could exceed the planned N13 trillion to address the budget deficit.
According to Afrinvest Research’s 2025 Outlook Report, net issuances of at least N13.7 trillion may be required to close the gap between projected expenditure and revenue, with a potential Eurobond issuance also on the table.
The 2025 Federal Government budget proposal, themed ‘Budget of Restoration: Securing Peace, Rebuilding Prosperity,’ is set at N49.7tn, projecting a total revenue of N36.35tn anchored on improved non-oil revenue generation. This includes expanded tax collections, customs duties, and independent revenue from government-owned enterprises, alongside oil revenue projections based on a crude oil benchmark of $75 per barrel, a production target of 2.06 million barrels per day, and an exchange rate of N1,500 per USD.
The proposed budget targets a fiscal deficit of N13.39 trillion (3.96% of GDP), which the federal government plans to finance through a combination of domestic and external borrowings, along with innovative public-private partnership arrangements.
In the report, the analysts said, “The FG plans domestic and foreign borrowings of N7.4tn and N1.8tn to plug a budget deficit of N13.1tn in 2025. We estimate that domestic borrowing could exceed the target, requiring net issuances of N13.7tn minimum in 2025. Overall, we estimated inflows of N28.45tn from maturing bills and coupon payments against outflows via gross paper supply of N37.5tn. We also do not rule out the possibility of a Eurobond market outing in 2025.
“Consequently, we expect significant pressure in the domestic market to intensify, even as banks would gear up recapitalisation. Thus, we anticipate a strain on the system liquidity level in the year.”
Their estimate shows that treasury bills are expected to generate the largest inflow at N12.47 trillion, followed by N11.34 trillion from OMO sales. The total inflow is projected to peak in the first quarter at N9.08 trillion.
Recall, Nigeria returned to the international debt market in November after a two-year hiatus, issuing a dual-tranche Eurobond under its Global Medium Term Note Programme to finance the 2024 fiscal deficit. The issuance was oversubscribed by over $9 billion, but the federal government ultimately raised $2.2 billion. It sold $700 million of a 6.5-year Eurobond maturing in 2031 at a coupon rate of 9.625%, and $1.5 billion of a 10-year Eurobond at 10.375%.
Commenting in the development, economist and Chief Executive Officer of Economic Associates, Dr. Ayo Teriba, said, “There are right and wrong ways of borrowing. There are efficient ways and there are inefficient ways of borrowing. The foremost is the quality of the debt instrument that you issue. Some countries with economies of comparable size borrow more heavily than we do but issue higher-grade bonds, investment-grade bonds, and borrow at a third of the rate at which we borrow. We borrow at some of the highest rates in the world, either domestically or abroad. So, we shouldn’t create the impression that it is a matter of whether we should borrow or not borrow. Part of the crisis that we have is that a third of the budget announced is going to go on interest payments alone.
“You shouldn’t continue to fund a deficit yearly with debt. If you look at your budget, you have debt as a possibility, but you also have equity as a possibility. The Nigerian government supports a thriving equity market on which the government has no issue. No state-owned company has any issue in the equity market at home or anywhere else in the world. We go every time to Europe; we don’t issue equity; we only issue debt.”
