In 2025, Nigeria witnessed a dramatic shift in credit allocation as government borrowing crowding out private sector activity intensified. According to Central Bank of Nigeria (CBN) data, the Federal Government borrowed N9.19 trillion from domestic financial markets—more than double the N3.62 trillion it raised in 2024. Meanwhile, net credit to the private sector shrank by N1.54 trillion, reversing the modest growth seen the previous year.
This widening gap reflects a classic crowding-out effect. As the government issued more Treasury bills and bonds to finance budget deficits, commercial banks redirected liquidity toward these low-risk, high-yield instruments. Consequently, businesses and households found it harder—and costlier—to access credit.
The numbers tell a stark story. Government credit jumped from N25.03 trillion in January 2025 to N34.22 trillion by December—a 37% annual increase. The steepest surge came in December alone, when borrowing spiked by N7.87 trillion. In contrast, private sector credit declined from N77.38 trillion to N75.83 trillion over the same period. September marked the lowest point, with lending falling to N72.53 trillion.
Experts warn this trend threatens economic growth. Segun Kadir Ajayi, Director-General of the Manufacturers Association of Nigeria (MAN), called the data “a clear indicator of crowding out.” He explained that manufacturers are scaling back expansion plans because they cannot afford loans at current interest rates—often exceeding 30%. “Many firms are simply not in a position to take on expensive credit,” he said.
Renowned economist Muda Yusuf echoed this concern. He noted that banks prefer sovereign debt because it carries minimal default risk and offers attractive returns. “The government can’t say it won’t pay back,” Yusuf said. “But for private businesses, lending is riskier—so banks avoid it.”
This imbalance has real-world consequences. Without affordable credit, companies delay investments, cut jobs, and reduce production. Consumer spending also suffers, weakening overall demand. Yusuf stressed that while government borrowing addresses fiscal shortfalls, it does not drive productive economic activity. “The private sector borrows to invest,” he said. “If that stops, growth stalls.”
Both Ajayi and Yusuf urged policy intervention. They recommended lowering interest rates, boosting government revenue to reduce borrowing needs, and creating targeted financing windows for industries like manufacturing and agriculture. “The government must be intentional about making low-cost credit available,” Ajayi insisted.
The surge in public borrowing stems from persistent fiscal pressures—rising debt servicing costs, fuel subsidy reforms, and exchange rate adjustments. At the same time, the CBN’s tight monetary policy, aimed at curbing inflation, has kept interest rates high. This combination squeezes the private sector from both sides.
Although total private sector credit remains larger in absolute terms (N75.83 trillion vs. N34.22 trillion for government), the direction of flow matters more. When new credit flows overwhelmingly to the state rather than businesses, it signals a misallocation of financial resources.
As Nigeria pushes for industrialization and job creation, rebalancing this equation is critical. Without deliberate action, the government borrowing crowding out private sector dynamic could deepen—undermining recovery, stifling entrepreneurship, and prolonging economic stagnation. Policymakers now face a clear choice: continue financing deficits at the expense of growth, or reform fiscal and monetary frameworks to unlock private investment.
