By Ade Adesokan
Nigeria’s bond market plays a critical role in financing key sectors like agriculture, health, education, and transportation. However, the country faces growing fiscal deficits and economic uncertainties, raising concerns about the sustainability of its borrowing strategy.
This presents an increasingly precarious picture as rising debt levels and persistently weak revenue generation threaten the country’s long-term fiscal sustainability. The Debt Management Office’s recent announcement offering N300 billion in Federal Government of Nigeria bonds for subscription by auction emerges against this backdrop of mounting fiscal pressures, representing yet another step in the government’s escalating borrowing trajectory that has alarmed financial analysts and policy experts.
President Bola Tinubu’s administration has demonstrated an unprecedented appetite for debt financing since assuming office in May 2023, recently writing to the National Assembly seeking approval for an additional external loan exceeding $21.5 billion. Simultaneously, the President is seeking legislative approval to issue Federal Government bonds worth N757.9 billion specifically to settle outstanding pension liabilities under the Contributory Pension Scheme, highlighting the government’s struggle to meet even basic statutory obligations without resorting to borrowing.
Financial analysts have raised serious concerns over Nigeria’s growing dependence on external borrowing, with Cowry Research Asset Management Limited cautioning that the pace and scale of loan acquisitions are becoming alarming, particularly as they remain largely unsupported by corresponding increases in sustainable revenue generation. The situation becomes more precarious with global oil prices falling below Nigeria’s $75 per barrel budgetary benchmark, undermining the revenue assumptions upon which the government’s borrowing strategy relies.
Since taking office, the Tinubu administration has secured substantial external loans across various sectors, with funds distributed through development-focused programs including $750 million for power sector recovery, $500 million for women’s empowerment, $800 million for social safety nets, and $700 million to enhance adolescent girls’ education. The most significant tranche of $2.25 billion was secured in June 2024 to support macroeconomic stabilization, including fiscal rebalancing and currency reforms, while additional tranches of $1.57 billion and $632 million are scheduled for September 2024 and March 2025 respectively, earmarked for health, education, energy, nutrition, and human capital development.
However, critics argue that a considerable portion of these loans funds recurrent and capital expenditures rather than revenue-generating or self-sustaining initiatives, potentially increasing Nigeria’s debt dependence without creating the fiscal buffers necessary to absorb future economic shocks. This concern is amplified by declining global oil prices and Nigeria’s continued reliance on oil revenues for a major share of government income, creating vulnerability to sustained price slumps that could significantly undermine the country’s ability to meet debt obligations and fund public services.
The timing of Nigeria’s massive borrowing plans is particularly concerning given the global bond market volatility that Japan’s crisis has unleashed and the additional pressures emerging from shifting U.S. economic policies. Higher Japanese bond yields are already triggering capital repatriation flows as investors pull funds from international markets, including emerging economies like Nigeria, while this dynamic is further compounded by warnings from major financial institutions about potential capital flight from developing nations.
JP Morgan has reportedly warned that emerging economies like Nigeria may face significant capital outflows if President Donald Trump’s America First policies continue gaining traction. According to the financial giant, emerging markets may be experiencing a dreaded sudden stop of capital flows as Trump’s economic policies, including tariff hikes and tax cuts, stimulate the U.S. economy and consequently pull capital away from developing nations. This double-barreled threat from both Japanese bond market turmoil and U.S. policy shifts threatens to reduce demand for Nigerian government securities precisely when the country is planning its largest domestic bond issuance in recent memory. The interconnected nature of global bond markets means that Nigeria cannot insulate itself from these spillover effects, making the proposed pension bond and current offering even more precarious.
Nigeria’s fiscal fundamentals present several red flags that mirror the conditions underlying Japan’s bond market crisis, including oil price volatility, insufficient revenue generation, high recurrent expenditure, and exchange rate fluctuations. These structural weaknesses make Nigeria particularly vulnerable to the kind of investor confidence collapse that Japan is currently experiencing. Unlike Japan, which benefited from decades of domestic savings and current account surpluses, Nigeria faces the additional challenge of limited domestic institutional investors and heavy reliance on foreign capital flows, making its debt strategy even more vulnerable to global market shifts.
The auction, scheduled for May 26, 2025, with settlement on May 28, features two distinct bond categories designed to attract diverse investor participation while addressing the government’s immediate financing requirements. Simultaneously, the Nigerian Debt Management Office has announced another bond offering on its website, inviting investors to subscribe to government savings bonds under the legal authority of established Nigerian debt management and securities laws. This parallel offering includes a 2-year bond maturing June 11, 2027, with a 16.121 percent per annum return, and a 3-year bond maturing June 11, 2028, offering 17.121 percent per annum.
The structure of this bond offering reveals the government’s calculated approach to domestic borrowing. The first component comprises a five-year bond carrying a 19.30 percent coupon rate, reopened in May 2025 with an initial maturity date of April 17, 2029, targeting N100 billion in proceeds. The second element involves a nine-year bond with a 19.89 percent coupon rate, also reopened in May 2025 with an initial maturity date of May 15, 2033, seeking to raise N200 billion. These instruments, available in N1,000 units with a minimum subscription threshold of N50,001,000, offer semi-annual interest payments and complete redemption upon maturity, positioning them as attractive fixed-income investments in Nigeria’s volatile economic environment.
The government savings bonds subscription period runs from June 2, 2025, to June 6, 2025, with bonds sold in N1,000 units requiring a minimum investment of N5,000 and allowing additional purchases in N1,000 increments up to a maximum of N50 million. According to a statement by the DMO on Monday in Abuja, the first offer is a two-year FGN Savings Bond due June 11, 2027, at an interest rate of 16.121 percent per annum, while the second offer is a three-year FGN Savings Bond due June 11, 2028, at an interest rate of 17.121 percent per annum. Settlement is scheduled for June 11, with coupon payment dates falling on September 11, December 11, March 11, and June 11, offering quarterly interest payments while principal repayment occurs as a bullet payment upon maturity.
The DMO assures that FGN savings bonds are backed by the full faith and credit of the Federal Government and charged upon Nigeria’s general assets. These instruments qualify as securities where trustees can invest under the Trustee Investment Act and as government securities within the meaning of the Company Income Tax Act and Personal Income Tax Act for tax exemption benefits, particularly for pension funds and other eligible investors. Listed on the Nigerian Exchange Limited, they qualify as liquid assets for liquidity ratio calculations for banks, making them attractive to financial institutions seeking regulatory compliance tools.
The FGN Savings Bonds represent government-backed securities designed to provide safe and accessible investment opportunities for individuals and small-scale investors, considered among Nigeria’s safest investments due to virtually no default risk. They offer fixed interest rates providing predictable returns, and unlike general FGN Bonds that often carry high minimum subscription amounts, these savings bonds are tailored for retail investors with lower entry barriers.
Recent research published in the Journal of Economic Development has shed light on the dynamics of Nigeria’s bond market, offering insights that could significantly impact the success of these latest offerings. The study, led by Salisu Garba Abdullahi from the Jigawa State College of Education and Legal Studies, explores the intricate relationship between macroeconomic factors and Nigeria’s bond market performance, revealing troubling dynamics that cast doubt on the sustainability of the current borrowing strategy.
At the heart of the findings is the realization that several macroeconomic elements are pulling the bond market in the wrong direction, with the study highlighting that increases in fiscal deficits negatively influence bond market development. This means that as the government’s budget gap widens, it becomes increasingly difficult for the bond market to flourish, creating a vicious cycle where excessive borrowing undermines the very market conditions needed to support sustainable debt financing. The research identifies factors like GDP per capita, inflation rates, interest rates, and the scale of banking operations as detrimental to bond market growth, suggesting that Nigeria’s current economic fundamentals work against the success of instruments like the N300 billion bond offering.
Conversely, the research identifies domestic debt and stock market development as positive forces for bond market performance, suggesting that a well-functioning stock market can create more favorable conditions for bonds by providing investors with diversified options and enhanced market stability. However, this finding raises questions about whether Nigeria’s current approach of rapidly expanding domestic debt through successive bond offerings might eventually undermine these positive dynamics through market saturation and investor fatigue.
For businesses and investors, these research findings present a sobering reality check on Nigeria’s bond market prospects. The study suggests that the financial sector, particularly investment banking and asset management firms, should advocate for fiscal reforms that enhance government discipline rather than simply facilitating more borrowing. The research emphasizes the importance of redirecting government spending toward productive projects that stimulate economic activity, rather than funding recurrent expenditures that drain resources without generating corresponding economic returns. Companies involved in infrastructure and development might benefit from a stronger bond market through more reliable funding sources and lower borrowing costs, but only if the underlying fiscal fundamentals improve rather than deteriorate further.
According to the DMO, tax exemptions under the Company Income Tax Act and the Personal Income Tax Act apply to the bonds, making them particularly attractive to pension funds and other approved investors. Listed on the Nigerian Exchange Limited and FMDQ OTC Securities Exchange, the bonds are easily accessible and tradable. Also, financial institutions can use them to meet liquidity ratio requirements, as they are recognised as liquid assets.
The bonds are backed by the full faith and credit of the Federal Government of Nigeria, adding a layer of security for investors. The government guarantee, charged upon the country’s general assets, further enhances the appeal of these bonds as a low-risk investment option. Combined with reliable interest payments, they offer a stable and predictable return for investors seeking fixed-income assets.
To participate in the auction, prospective investors must subscribe through authorised Primary Dealer Market Makers such as Access Bank, Zenith Bank, Stanbic IBTC Bank, and United Bank for Africa. The government has so far borrowed N10.85 trillion from the domestic market in the first four months of 2025. The move is part of a broader plan to finance the 2025 budget deficit of N13 trillion, while providing investment opportunities for both institutional and individual investors.
The timing and scale of this bond issuance carry profound implications for Nigeria’s economic recovery trajectory. With the government having already borrowed N10.85 trillion from the domestic market in the first four months of 2025, this N300 billion offering forms part of a broader strategy to finance the anticipated N13 trillion budget deficit for 2025. This aggressive domestic borrowing pattern reflects both the government’s limited access to affordable international capital markets and its deliberate shift toward reducing external debt vulnerability.
From a macroeconomic perspective, this bond offering serves multiple strategic functions that extend far beyond simple deficit financing. The instruments operate as crucial tools for monetary policy implementation, allowing the Central Bank of Nigeria to manage liquidity conditions within the financial system. By absorbing excess naira liquidity through bond sales, the government can potentially moderate inflationary pressures while providing the banking sector with high-quality collateral for various financial operations. The bonds’ recognition as liquid assets for meeting regulatory requirements further enhances their utility within Nigeria’s financial architecture.
The generous coupon rates of 19.30 percent and 19.89 percent reflect the prevailing high-interest-rate environment necessitated by Nigeria’s persistent inflation challenges. While these rates make the bonds attractive to yield-seeking investors, they simultaneously impose significant debt servicing burdens on government finances. The semi-annual interest payment structure ensures consistent income streams for bondholders, particularly appealing to pension funds and institutional investors seeking predictable returns. However, the cumulative interest obligations over the bonds’ lifespans will substantially increase the government’s long-term fiscal commitments.
For ordinary Nigerians, the implications of this bond offering extend beyond direct investment opportunities. The high minimum subscription threshold of approximately N50 million effectively excludes individual retail investors, concentrating participation among institutional players and high-net-worth individuals. This exclusion represents a missed opportunity for democratizing government debt ownership and fostering broader financial inclusion. The bonds’ tax exemptions under both Company Income Tax and Personal Income Tax Acts, while attractive to eligible investors, further concentrate benefits among already privileged financial entities.
The broader economic implications become more concerning when viewed against Nigeria’s escalating debt profile. As of December 31, 2024, Nigeria’s total public debt reached N144.67 trillion, representing a staggering 48.58 percent increase from the previous year. The composition reveals external debt of N70.29 trillion and domestic debt of N74.38 trillion, with the Federal Government’s domestic debt component rising from N53.26 trillion to N70.41 trillion. This trajectory raises critical questions about fiscal sustainability and the government’s capacity to service mounting obligations without compromising essential public services.
The concentration of debt accumulation at the federal level, while state governments and the Federal Capital Territory reduced their collective debt from N5.86 trillion to N3.97 trillion, suggests a centralization of fiscal risks that could have far-reaching consequences for Nigeria’s federal structure. The federal government’s increasing reliance on domestic borrowing, exemplified by this N300 billion bond offering, crowds out private sector access to domestic capital while potentially driving up borrowing costs across the economy.
The economic recovery implications of this borrowing strategy present a complex paradox. While the funds raised through bond issuances can finance critical infrastructure projects, social programs, and budget operations that support economic activity, the debt service burden increasingly constrains fiscal space for productive investments. The government’s allocation of significant portions of revenue to debt servicing reduces resources available for education, healthcare, infrastructure maintenance, and other growth-enhancing expenditures that directly benefit ordinary Nigerians.
The bond offering’s success depends heavily on investor confidence in Nigeria’s ability to honor its obligations amid challenging economic conditions. The government’s guarantee backed by the full faith and credit of the Federal Republic provides theoretical security, but practical concerns about fiscal sustainability may influence investor behavior. International rating agencies’ assessments of Nigeria’s creditworthiness will likely factor in the country’s debt trajectory and ability to generate sufficient revenue for debt service without compromising governance and development objectives.
The listing of these bonds on both the Nigerian Exchange Limited and FMDQ OTC Securities Exchange enhances their liquidity and tradability, potentially attracting both domestic and foreign portfolio investors. However, the concentration of trading among institutional participants limits broader market participation and price discovery mechanisms. The bonds’ utility for financial institutions in meeting liquidity ratio requirements creates artificial demand that may not reflect underlying economic fundamentals.
For Nigeria’s economic recovery, this bond offering represents both opportunity and risk. The immediate fiscal relief enables continued government operations and potential infrastructure investments that could stimulate economic activity and job creation. However, the long-term debt service obligations constrain future fiscal flexibility and may necessitate higher taxes, reduced public spending, or additional borrowing to meet obligations. This dynamic creates a debt trap scenario where borrowing to service existing debt becomes increasingly necessary.
The impact on ordinary Nigerians manifests through multiple channels. Higher government borrowing can crowd out private sector credit access, potentially limiting business expansion and job creation opportunities. The debt service burden may necessitate higher taxes or user fees for public services, directly affecting household finances. Alternatively, the government might reduce spending on social programs, education, or healthcare to accommodate debt service requirements, indirectly harming public welfare.
The foreign exchange implications of this domestic borrowing strategy offer some benefits by reducing pressure on Nigeria’s external reserves and limiting exposure to exchange rate volatility. However, the high interest rates required to attract domestic investors impose costs that may exceed those of carefully managed external borrowing, particularly when considering the potential productivity of invested funds.
Looking forward, Nigeria’s debt sustainability requires fundamental reforms in revenue generation, expenditure efficiency, and economic diversification. The continued reliance on bond financing to bridge fiscal gaps without corresponding improvements in revenue collection or economic productivity creates unsustainable dynamics. The government must balance immediate financing needs against long-term fiscal health while ensuring that borrowed funds generate sufficient economic returns to justify their costs.
However, Nigeria’s path to sustainable economic recovery and reduced reliance on debt financing requires exploring comprehensive alternative strategies that address structural weaknesses in the economy. Revenue diversification represents perhaps the most critical opportunity, as expanding non-oil sectors such as agriculture, manufacturing, technology, and tourism could significantly reduce the nation’s dangerous dependence on volatile oil revenues. Strengthening tax collection systems and broadening the tax base through improved compliance mechanisms and inclusive economic policies would provide more stable government revenue streams, reducing the need for excessive borrowing to finance basic operations.
Infrastructure development remains fundamental to Nigeria’s economic transformation, with strategic investments in transportation networks, energy systems, and digital infrastructure capable of boosting productivity and attracting both domestic and foreign investment. Enhanced regional development commissions could help decentralize economic growth, ensuring that prosperity extends beyond major urban centers to benefit rural communities and reduce inequality. These infrastructure investments, when properly executed, generate multiplier effects that justify their financing costs through increased economic activity and tax revenue generation.
Financial sector reforms offer additional pathways to economic recovery, particularly through establishing consumer credit programs that improve access to finance for businesses and individuals currently excluded from formal financial services. The introduction of dollar-denominated bonds issued locally could attract foreign investment while helping stabilize the naira, providing an alternative to the current high-cost domestic borrowing strategy. Such instruments could tap into diaspora savings and foreign portfolio investments without the complications of international bond issuances.
Industrial and trade policy reforms present opportunities to stimulate economic growth through encouraging local production via targeted incentives for small and medium enterprises, which employ the majority of Nigeria’s workforce. Strengthening trade agreements to boost exports and attract foreign direct investment could improve the country’s balance of payments while creating employment opportunities for ordinary Nigerians. These policies could reduce import dependence while building competitive domestic industries capable of serving both local and international markets.
Social and human capital development investments, though requiring upfront costs, provide long-term returns that justify financing through strategic borrowing. Expanding education financing through well-structured student loan programs could improve workforce skills and productivity, generating economic returns that exceed borrowing costs. Similarly, investments in healthcare and nutrition enhance economic resilience by reducing productivity losses from preventable diseases and improving human capital quality.
Governance and transparency improvements, while not directly generating revenue, create conditions for more effective resource utilization and increased investor confidence. Strengthening anti-corruption measures would improve fiscal discipline and ensure that borrowed funds reach their intended purposes rather than being diverted through rent-seeking activities. Enhanced oversight mechanisms for debt allocation and project execution could dramatically improve the productivity of government spending, making borrowing more justifiable through demonstrated results.
Energy and sustainability initiatives represent both immediate cost-saving opportunities and long-term competitive advantages. Accelerating renewable energy projects could reduce dependence on expensive fossil fuel imports while improving energy security for businesses and households. Investing in compressed natural gas infrastructure would lower transportation costs and boost industrial efficiency, creating economic benefits that could offset financing costs while reducing environmental impacts.
The effectiveness of these alternative strategies depends heavily on implementation quality and political commitment to sustained reform efforts. Nigeria’s history includes numerous well-intentioned policy initiatives that failed due to poor execution, corruption, or political interference. The current debt trajectory makes comprehensive reform implementation more urgent, as continued reliance on borrowing without structural changes will eventually lead to unsustainable debt burdens that could trigger economic crisis.
The success of this bond offering will likely influence future government borrowing strategies and investor confidence in Nigeria’s debt instruments. Strong subscription levels may encourage additional domestic borrowing, while weak demand could force the government to reconsider its financing mix or improve fiscal discipline. Either outcome carries significant implications for Nigeria’s economic trajectory and the welfare of its citizens.
In conclusion, while the DMO’s N300 billion bond offering provides necessary short-term fiscal relief and offers attractive investment opportunities for qualified participants, its long-term implications for Nigeria’s economic recovery and ordinary citizens remain deeply concerning. The escalating debt burden, concentrated among institutional investors, high service costs, and limited direct benefits for average Nigerians suggest that this borrowing strategy, while immediately necessary, may not contribute meaningfully to sustainable economic recovery without accompanying structural reforms in governance, revenue generation, and economic diversification. Nigeria’s future prosperity depends on implementing comprehensive alternative strategies that reduce borrowing dependence while building productive capacity, improving governance, and ensuring that economic growth benefits all citizens rather than privileged financial institutions. The true test of this bond offering’s value will be whether the government can translate borrowed funds into productive investments that generate sufficient economic growth and revenue to justify the debt burden imposed on current and future generations of Nigerians.
*Ade Adesokan is a public affairs commentator*
