On May 27, the President formally requested the National Assembly’s approval for the 2024–2026 external borrowing plan for a total amount of USD24.10 billion, comprising USD21.5 billion, EUR2.20 billion, and JPY15.00 billion.
The Minister of Finance noted that the plan, a statutory component of the Medium-Term Expenditure Framework (MTEF), covers projects at both federal and sub-national levels. The external loan projection also includes a significant share of concessional financing from multilateral and bilateral partners, which can be drawn down within a 5–6 year period.
The 2023 revised 2024–2026 MTEF projected external borrowings of NGN9.17 trillion (USD13.29 billion) for the Federal Government (FG), comprising NGN4.15 trillion (USD7.24 billion) in Eurobond issuances and NGN5.02 trillion (USD6.05 billion) in project-tied loans. These estimates may have been further revised to reflect the depreciation of the naira and broader macroeconomic adjustments.
However, the figures suggest that the FG likely accounts for the largest share of the newly submitted borrowing request. Assuming the FG’s borrowing target remains unchanged at USD13.29 billion, the balance of USD10.81 billion likely represents external borrowing needs at the sub-national level.
Actual Borrowing Will Closely Reflect Annual Budget Plans
Despite the broader MTEF targets, we believe the FG’s actual borrowing will be more closely aligned with its approved annual budget. The finance minister has reiterated that the 2025 external borrowing plans will reflect the budgetary provisions.
For 2025, the government intends to raise NGN1.84 trillion (USD1.20 billion) via Eurobond issuance and secure an additional NGN3.80 trillion (USD2.53 billion) in project-tied loans. Notably, the World Bank approved USD1.08 billion in concessional financing in March 2025, which likely forms part of the project-related loan budget.
However, downside risks remain. Global macroeconomic uncertainty and cautious investor sentiment have driven borrowing costs higher, posing challenges to sovereign bond issuances. Moreover, the realisation of project-linked loans will depend on the timely completion of appraisals and adherence to disbursement conditions. Historically, Nigeria has struggled to execute capital projects effectively, with delays, weak procurement systems, and difficulties in meeting multilateral requirements often impeding performance.
Domestic Borrowing to Remain the Mainstay
Government borrowings in the debt market is expected to remain elevated, particularly as budgeted revenues are likely to fall short due to weaker oil receipts stemming from both lower-than-budgeted crude oil prices (Jan–Apr average: USD67.72/barrel vs. budget benchmark of USD75.00/barrel) and underperformance in production volumes (Jan–Apr average: 1.68 mb/d vs. budget target of 2.06 mb/d).
With domestic borrowings generally carrying lower risk, including reduced currency exposure and more manageable debt servicing terms, we anticipate that the government will continue to rely heavily on the domestic market to meet its financing needs.
Given our revenue forecast of NGN28.77 trillion (compared to the budgeted NGN41.81 trillion) and a projected budget implementation rate of 82.3% (NGN45.24 trillion vs Budget: NGN54.97 trillion), we forecast the fiscal deficit to settle at NGN16.47 trillion in 2025FY – including project-tied loans of NGN3.80 trillion. Excluding these loans and privatization proceeds of NGN312.33 billion, we estimate net borrowing requirements at approximately NGN12.36 trillion.
As of now, the government has already mobilized NGN2.99 trillion through domestic instruments such as Treasury bills and bonds. Should the FG succeed in issuing up to USD2.00 billion in Eurobonds, the balance of c. NGN6.37 trillion will likely be sourced from the domestic market in the months ahead. This points to continued robust borrowing activity, potentially supplemented by domestic dollar-denominated bonds. The government’s ongoing pivot away from deficit financing through the Central Bank of Nigeria (CBN) also underscores its growing reliance on the broader debt market.
Fixed Income Yields Likely to Pare but will Remain Elevated
Despite robust borrowing forecasts, which are expected to sustain an elevated supply of government securities, we expect yields to moderate in H2-25. This is primarily due to a potential shift to monetary policy easing by the Monetary Policy Committee (MPC) in the later part of the year.
Specifically, we believe that if inflation continues to moderate and global headwinds ease further, the MPC will likely initiate its first interest rate cut at its November policy meeting, reducing the MPR by 100bps to 26.50%. This is expected to cause yields to moderate further towards the end of the year.
Nonetheless, still high borrowings and a cautious pace of monetary easing, underpinned by the existing global uncertainty, will keep yields relatively high by historical standards. On average, we estimate yields on Treasury bills and Bonds to ease to 20.5% (current: 23.0%; 3-year average: 11.14%) and 17.5% (current: 18.8%; 3-year average: 14.80%), respectively, by year-end.
Cordros
