Public Sector Borrowing Surges Despite Tight Monetary Policy
Despite the Central Bank of Nigeria’s stringent monetary policy, credit extended to the Nigerian government rose significantly by N17.39 trillion in the year leading up to May 2026. This increase highlights a persistent trend in public sector borrowing.
According to data from the Central Bank of Nigeria (CBN), government credit surged from N22.99 trillion in May 2025 to N40.38 trillion in May 2026. Additionally, this marks a rise from the N39.6 trillion recorded just the previous month, April 2026.
The escalating government credit aligns with banks amplifying their investments in public sector financial products, even as private sector credit experienced modest growth during the same period.
Analysis of Financial Statistics
A closer look at the CBN financial data reveals that the N17.39 trillion year-over-year increase in government credit translates to a substantial 75.6% growth from May 2025 to May 2026. Month-over-month, government credit saw a boost of N779.7 billion from the previous month, equating to a 2.0% increase.
In contrast, private sector lending moved from N80.59 trillion in April 2026 to N81.4 trillion in May 2026, marking an increase of N456.21 billion, or 0.57%. Notably, private sector credit remains more than double that of government credit, approximately 2.01 times as of May 2026. However, the growth rate in private sector lending lagged behind that of government credit.
The data indicates a consistent rise in bank lending to governments, while growth in lending to businesses and households remains more gradual, prompting economists to analyze the broader implications.
Implications of Increased Government Credit
This increase in government credit signals banks’ ongoing engagement in financing the public sector through loans, advances, and acquisitions of government securities. Earlier reports from Nairametrics indicated that bank credit to the Nigerian government rose by N15.66 trillion over the past year. By May, this year-on-year increase widened to N17.39 trillion.
Private sector credit displayed a more tempered growth, rising by around N3.07 trillion from N77.97 trillion in May 2025 to N81.4 trillion in May 2026. The contrast in growth rates between government and private sector credit underscores the intensified focus on public sector lending during this timeframe.
It’s worth noting that the CBN has yet to provide a detailed sectoral breakdown of private sector credit distribution as of May 2026, leaving some questions about the landscape of business lending.
Concerns Over Crowding-Out Effect
Mallam Muftau Yusuf, a financial economist at Quik Securities, raised concerns regarding the implications of increased government borrowing in a high-interest environment. He emphasized that financial institutions are often drawn to government bonds due to the lower risk and more predictable returns they offer compared to loans to businesses facing economic challenges.
Yusuf cautioned that significant government borrowing risks diminishing available credit for productive sectors within the economy. “When faced with higher returns and minimal risks, banks tend to prioritize lending to government entities,” he remarked.
He further noted that while government borrowing is crucial for infrastructure development and bridging fiscal deficits, excessive reliance on domestic borrowing could stifle investment opportunities for manufacturers and small to medium-sized enterprises.
Dr. Ben Oladunjoye, another economist based in Abuja, echoed these sentiments, stating that the attractive yields on government bonds often incentivize banks to favor holding these securities over providing long-term credit to businesses. He cautioned that sustained attractiveness of government securities would likely result in a disproportionate increase in government borrowing relative to credit available for the real economy.
Current Monetary Policy Landscape
In May 2026, the CBN maintained its monetary policy rate at 26.5%, following a 50 basis-point reduction from 27% during its 304th Monetary Policy Committee (MPC) meeting. This decision underscores the central bank’s prioritization of inflation control and macroeconomic stability.
The unchanged interest rate could translate to higher borrowing costs for businesses and households, potentially restraining private sector credit demand. Furthermore, banks may continue to favor low-risk government bonds over lending to the private sector.
Monitoring the sustained growth in credit to the government is essential for understanding the balance between public borrowing needs, the liquidity of the banking sector, and the financing available for private enterprises.
