Report Forecasts Nigeria’s Fiscal Deficit Widening to N25.7tn, 4.9% of GDP

Nigeria's fiscal deficit is expected to widen to N25.7 trillion, or 4.9% of its Gross Domestic Product (GDP), by the close of 2026. This projection, outlined in a report by CardinalStone, attributes the widening gap to sustained high government spending that continues to outpace revenue growth, even amidst ongoing fiscal reforms.

The report, titled “Steady Hands-on Shifting Grounds,” estimates that with limited oil windfall gains and substantial government expenditure of N63.0 trillion, the fiscal deficit will likely reach the projected N25.7 trillion. To manage this deficit, the government has already engaged in significant domestic borrowing, netting approximately N8.6 trillion from the local market through bonds and Nigerian Treasury Bills (NTBs). Furthermore, there's an increasing reliance on external debt financing, including a proposed $5 billion Total Return Swap program, a $1 billion UK Export Finance facility, a $1.3 billion World Bank loan, and a $516 million syndicated loan for a major highway project.

Despite the increase in borrowing, CardinalStone maintains that Nigeria's overall debt profile remains manageable. The firm projects total public debt to reach N184.9 trillion, or 35.5% of GDP, in 2026, a slight decrease from 36.9% in 2025. This outlook is supported by factors such as Naira appreciation and faster nominal GDP growth. The International Monetary Fund (IMF) assesses the risk of sovereign distress as moderate, citing Nigeria's relatively low debt-to-GDP ratio, the long maturity structure of its debt, and improvements in macroeconomic conditions.

Since the implementation of fiscal reforms in 2023, government revenue mobilization has shown marked improvement. Monthly gross Federation Account Allocation Committee (FAAC) earnings have surged to an average of N2.2 trillion, a significant increase from the pre-reform average of N0.9 trillion. These gains are bolstered by the recent rise in oil prices and stronger non-oil revenue streams, including enhanced tax collections and reforms within the oil sector. Data from Bloomberg indicates Nigeria generated N15.8 trillion in tax revenue in the first five months of the year on an annualized basis.