Nigeria has finally achieved what it has chased for three years – growth is back, inflation is down, the naira is stable and rating agencies are clapping. Real GDP grew 4.43% in Q2 2026, inflation fell to 14.63% in September, the current account surplus hit $7.54 billion, gross reserves touched $54.9 billion, and S&P gave its first upgrade since 2012. Yet in the same quarter, the federal government spent N7.7 trillion in interest to earn N6.2 trillion in revenue. That is a 124% interest-to-revenue ratio. Nigeria has stabilised the economy, but it has not yet funded the state.
This is the central contradiction in Tilewa Adebajo’s CFG Advisory of October 2026, and it is correct. The official record supports stabilisation, but public finance is now the main threat to its durability.
The weaknesses are not about size of debt but about affordability and credibility.
First, the federal government cannot afford its debt on its own revenue. Even after improvement from 156% in H1 2025 to 124% in H1 2026, the federal interest burden is more than double the 50% threshold Fitch considers high. Fitch puts general government interest-to-revenue at 27% against 14% for B-rated peers. The World Bank puts full-year debt service including principal at 46% of revenue. Whether you use 124%, 97%, 46% or 27%, every measure says the same thing: Nigeria’s federal purse is weak by peer standards.
Second, no one knows the true deficit. Because government did not publish a deficit figure, analysts have to derive it. From the N68.32 trillion Appropriation Act minus N36.87 trillion revenue, the gap is N31.45 trillion or 6.41% of GDP – more than double the 3% ceiling in the Fiscal Responsibility Act. Analysts project 5.3%, Fitch projects 3.6% general government, World Bank 3.5% consolidated. Four different perimeters, four different answers. The IMF’s 2026 Article IV adds a statistical discrepancy of 2.7% of GDP from spending outside the Accountant-General’s accounts. You cannot fix what you cannot measure.
Third, budget provisions show the crowding out. Debt service provision of N15.81 trillion is 1.06 times the combined allocation to defence, infrastructure, education and health at N14.97 trillion. We are spending more to service old borrowing than to defend the country and build its future.
These weaknesses feed directly into three existential threats.
The first is domestic borrowing crowding out private credit. The DMO plans N5.75 trillion in bond offers in Q4 2026 alone – 2.31 times what it allotted in Q3. In the first nine months, it already allotted N7.15 trillion versus N3.48 trillion last year. At the 19 October auction, the 2036 bond stop rate rose to 17.29% – 2.66 percentage points above inflation. Banks are holding N40 trillion in CRR at 45% and Standing Deposit Facility, up from N14.09 trillion in June 2023. Result: Despite CBN cutting MPR to 23%, Tier-1 banks told the market they have no immediate plans to cut lending rates. Government borrowing is keeping money expensive for everyone else.
The second is fragile external financing. Q1 capital importation was $10.37 billion, but 95.09% was portfolio money, only 1.3% or $135 million was FDI. World Bank says H1 net portfolio inflows up 80.8% to $12.2 billion, direct investment down 15% to $2.2 billion. This is hot money priced off a 17.29% bond yield and a stable naira. If fiscal slippage triggers naira pressure, that money exits. And the surplus does not even reach reserves fully – net errors and omissions were negative $5.82 billion in Q2, overall BoP surplus $3.51 billion against $7.54 billion current account surplus. World Bank puts H1 errors at negative $12.4 billion linked to export proceeds not repatriated.
The third is pre-election fiscal blowout. The World Bank’s “Beyond the Federal Purse” update notes spending growing faster than revenue in 26 of 34 states with data, and links widening consolidated deficit to state capital and pre-election spending. States and FCT hold only N14.01 trillion of N166.79 trillion total public debt, but their behaviour determines the consolidated outcome. 2027 is coming.
So how are Nigeria’s strengths being deployed to neutralize these?
The strength of improved revenue is being used, but not yet transparently. Finance Ministry says revenue rose 72% YoY vs 38% rise in interest. That improvement is real and explains the fall from 156% to 124%. The dispute over the 124% figure – Ministry says it includes debt serviced on behalf of states and excludes unremitted agency revenues and H2-weighted taxes – actually points to the solution: a reconciled federal fiscal account linking appropriations, implementation reports, deficit and actual borrowing, as Proshare has demanded. The Ministry’s argument, if quantified, would narrow the ratio.
The strength of disinflation and rating upgrades is being deployed to ease monetary conditions. The CBN’s cut to 23% was described as recalibration because market rates were near 22% while MPR was at 26.5%. Lower inflation provides cover to reduce the punitive 45% CRR over time, which Fitch identifies as constraint on credit growth. If CRR is eased, N40 trillion can flow back to private credit.
The strength of the external surplus is being deployed to build buffer, but disclosure is the missing link. CFG itself estimates net reserves crossed $40 billion, Fitch says $34.8 billion net at end-2025. Adebajo’s 4th recommendation – better disclosure of gross and net reserves – would resolve this and anchor portfolio confidence.
The opportunity is to convert reform credibility into bankable projects. As Olufemi Awoyemi argued in June 2026, infrastructure and power attract long-term capital when they have bankable revenue models, enforceable contracts and risk properly allocated. PPPs and domestic capital market instruments discussed at Proshare HardFacts can lengthen tenors, even if they leave contingent liabilities.
Future prospects hinge on three releases, not promises.
First, revenue that keeps outpacing interest. Four new tax laws took effect January 2026. IMF studies show median tax-to-GDP gains in programs are only 0.3pp versus 1pp projected, and half of projected yields fail. Nigeria is outside IMF program, but same optimism bias applies. Strong administration, not just laws, will decide if N36.87 trillion revenue projection is real.
Second, a deficit outturn close to multilateral projections of 3.5-3.6%, not the 6.41% appropriation-implied figure. That requires federal and state compliance audits before 2027.
Third, a financing mix shift from 95% portfolio to more FDI and domestic long-term capital.
Adebajo’s 8-10% growth benchmark is ambitious – 1.82 to 2.27 times World Bank’s 4.4% average forecast, implying investment of 32% of GDP assuming capital-output ratio of 4. It reads best as ambition. Progress toward it will be judged not by GDP alone but by his 7th recommendation: real incomes, jobs, food affordability, poverty and real GDP per capita.
Nigeria is no longer stabilising. It is in execution stage, as Proshare’s Q1 review noted. Execution now means one thing: transparent federal and state fiscal reporting, realistic revenue, disciplined project selection and predictable financing. If those come, Fitch and Moody’s positive outlooks will become upgrades. If federal and state deficits widen into 2027 on the back of N5.75 trillion Q4 borrowing and portfolio flight, the stabilisation gains of Q2 and Q3 will prove to be foundation, not prosperity.
