Rising public debt dims CBN’s rate cut – Experts

Economic watchers have said that Nigeria’s improving macroeconomic indicators, including a cautious 50-basis-point rate cut by the Central Bank of Nigeria, easing inflation, exchange rate stability, stronger external reserves, and sustained GDP expansion, are being overshadowed by a steadily rising public debt profile.

According to the Debt Management Office, Nigeria’s total public debt rose to N153.29tn as of September 2025, up 7.71 per cent year-on-year from N142.32tn in September 2024 and 0.59 per cent from N152.39tn in June 2025, driven by increases in both domestic and external borrowings.

As of Q3 2025, domestic debt stood at N81.82 tn, up 11.42 per cent year-on-year from N73.43 tn in September 2024 and 1.57 per cent from N80.55 tn in June 2025. External debt amounted to N71.48tn, rising 3.76 per cent year-on-year from N68.89tn in September 2024. Domestic debt continues to account for 52.90 per cent of total public debt, reflecting the government’s ongoing reliance on the local debt market.

Nonetheless, the debt-to-GDP ratio improved 37.13 per cent from 40.68 per cent in 9M:2024, supported by stronger GDP growth and a slower pace of debt accumulation. In terms of debt servicing, domestic debt service rose by 47.56 per cent year-on-year to N6.32tn, largely due to a 385.43 per cent increase in Treasury bill interest payments to N1.81tn (compared to N372.52bn in September 2024) amid higher auction volumes and elevated stop rates. In contrast, external debt service declined 6.79 per cent year-on-year to $3.34bn from $3.58bn, primarily due to an 18.48 per cent reduction in multilateral obligations, partly offset by a 24.46 per cent rise in bilateral payments.

Commenting on the results, the experts at Afrinvest Research said the three important national statistics released during the past week – the monetary policy decision by the Central Bank of Nigeria, Q3:2025 public debt statistics by the Debt Management Office, and the Q4:2025 Gross Domestic Product data by the NBS – have important impacts on the economy.

The Monetary Policy Committee of the CBN, following its two-day assessment of developments in the domestic and global macroeconomic environment, voted to reduce the Monetary Policy Rate by 50 basis points to 26.5 per cent.

Meanwhile, other monetary policy parameters, the asymmetric corridor around the MPR and the Cash Reserve Requirement for Deposit Money Banks, Merchant Banks, and non-TSA government agencies, were retained at +50/-450 bps, 45.0 per cent, 16.0 per cent, and 75.0 per cent, respectively.

The experts said, “This decision aligns fully with our projection in last week’s commentary. From the post-MPC communiqué published on the CBN website, key supportive factors underpinning the dovish pivot include the sustained disinflation trend (headline inflation moderated by 5 bps to 15.1 per cent year-on-year in January); exchange rate stability (the naira appreciated 6.4 per cent to N1,363.40/$ at the official market since the last MPC meeting); and continued real sector expansion (PMI remained in expansionary territory for the twelfth consecutive month, printing at 55.7 points in January). In addition, improved availability and price stability of energy products; stronger external reserves (rising to $50.5bn in February, according to the post-MPC statement, from $44.5bn in November 2025); and positive external sector developments, including a significant uptick in foreign portfolio inflows (up 225.6 per cent to $14.2bn in 9M:2025) and improvements in the balance of payments position, partly supported by reduced reliance on imported refined petroleum products, guided the MPC’s position.

“The MPC’s position was further reinforced by the upward revision of the 2026 global growth outlook by the IMF (to 3.3 per cent from 3.1 per cent previously) and signs of moderating (albeit uneven) global inflation across major economies. The committee also appraised Executive Order 9 (EO-9), which mandates that Nigeria’s oil and gas revenues be remitted directly into the Federation Account rather than retained by NNPC. The Apex Bank expressed the view that this directive would enhance fiscal revenue transparency and strengthen accretion to foreign reserves. We align with the MPC’s rationale for the rate adjustment, as it falls within the narrative we outlined in our pre-MPC note.

“Looking ahead, we remain cautiously optimistic that risk factors may remain broadly tilted to the downside in the near term, thereby enabling a positive pass-through from the dovish shift into the credit market. This could, in turn, ease pressure on corporate balance sheets and support renewed investment interest in equities. That said, the most significant downside risk to the CBN’s policy calibration remains pre-election fiscal dynamics. The Independent National Electoral Commission has rescheduled the 2027 general elections to 16 January 2027 (from 20 February 2027, previously). This adjustment potentially accelerates political activities and campaign spending. Historically, pre-election cycles have been associated with elevated liquidity injections into the system, which could complicate monetary transmission and inflation management. Furthermore, early politicking may distract focus from governance priorities and capital expenditure implementation. Consequently, we advise that the CBN maintain vigilant liquidity surveillance and remain resolute against potential fiscal-induced policy slippages.”

Concerning the debt, Meristem Securities said, “Public debt is expected to rise further, driven by higher domestic borrowings and increased external commitments, particularly given the wider 2026 budget deficit of N23.85tn (compared to N14.10tn in 2025). Debt service growth may moderate as stop rates trend lower following the February MPR cut.

“The DMO is also expected to leverage favourable external rates and improved investor confidence, while sustained exchange rate stability should help contain near-term external debt servicing pressures.”