The Federal Government plans to borrow N17.89 trillion in 2026 to finance a widening budget deficit, according to the 2026 budget framework from the Budget Office of the Federation.

The new borrowing target is a sharp rise from the N10.42tn planned for 2025 – an increase of about 72% in one year. The 2026 fiscal deficit is put at N20.12tn, up from N14.10tn in 2025.

Even though the deficit is bigger in naira terms, government forecasts say the deficit-to-GDP ratio will drop from 4.17% in 2025 to 3.61% in 2026, based on expectations of a larger economy. The ratio is projected to fall further in 2027 and 2028.

The main reason for the heavier borrowing is weaker revenue. Funds available for the federal budget (excluding government-owned enterprises) are projected to fall from N38.02tn in 2025 to N29.35tn in 2026 – a drop of about 23%.

Most of the 2026 borrowing will come from the local market. Of the planned N17.89tn, about N14.31tn (80%) is expected from domestic investors, while N3.58tn (20%) will come from external sources. This 80:20 split is expected to continue through 2027 and 2028.

Debt service is also set to rise. Payments are projected at N13.94tn in 2025 and N15.52tn in 2026. The debt service-to-revenue ratio is expected to jump from 34% in 2025 to 45% in 2026, meaning almost one out of every two naira of government revenue will go to servicing debt.

Total federal spending is forecast to be roughly flat at about N54.5tn, but the mix is changing. Recurrent non-debt spending and debt service are rising, while capital expenditure is projected to drop from N26.19tn in 2025 to N22.37tn in 2026, partly because MDAs have been told to roll over 70% of their 2025 capital budgets.

Economists quoted in the framework and related discussions warn that the rising deficit and heavier local borrowing could squeeze private sector access to credit, push up interest rates, and threaten recent gains in macroeconomic stability if not carefully managed.