FG: Nigeria Not Experiencing Fiscal Collapse, Ongoing Reforms Signal Correction

Eromosele Abiodun

The federal government has dismissed concerns that Nigeria’s public finances are deteriorating, insisting that the country is not facing a fiscal collapse but undergoing a difficult yet necessary fiscal correction following years of structural distortions in the management of public revenue and expenditure.

The government made the clarification via a statement issued by the Federal Ministry of Finance in Abuja and signed by the Special Adviser to the Minister of Finance and Coordinating Minister of the Economy on Media and Communications, Dr. Ogho Okiti.

The statement, titled, “Deepening Public Understanding of Nigeria’s Fiscal Position: Context and Background,” explained that recent concerns over low capital releases to ministries, departments and agencies (MDAs) stem largely from misunderstanding the structure of Nigeria’s fiscal system, particularly the difference between Federation finances and the finances of the federal government.

According to the ministry, although federation revenues may appear relatively stable in aggregate, the federal government’s share can fall significantly below projections when oil revenue underperforms.

The clarification followed recent appearances by the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, before the Senate and the House of Representatives in defence of the 2026 budget proposals, where lawmakers sought explanations on fiscal performance and capital expenditure execution.

The ministry cited sharp oil and gas revenue shortfalls as a key factor affecting the Federal Government’s fiscal position in recent years.

“In 2025, projected federation oil and gas revenue stood at N37.4 trillion. However, actual inflows were only about N7 trillion, representing a performance rate of just 19 percent.

The ministry noted that if the projections had been realised, the Federal Government alone would have received roughly N15 trillion more in revenue.

“Because oil revenue allocation favours the federal government more heavily than other revenue streams, such shortfalls tend to impact federal finances disproportionately. Under the revenue sharing framework, the federal government receives roughly 53 to 65 percent of oil and gas revenues, depending on the specific components, while Value Added Tax (VAT) is distributed differently, with only 20 percent going to the Federal Government and 80 percent shared by states and local governments. As a result, the ministry said oil underperformance can significantly weaken federal revenue even when total federation receipts appear relatively stable,” it said. 

Addressing concerns that low capital releases to MDAs suggest stalled infrastructure development, the ministry said capital expenditure execution remains ongoing but is being financed through a mix of funding sources.

It explained that federal capital spending consists of two major components: MDA-funded projects financed directly from federal cash revenues and projects funded through multilateral or project-tied loans.

“The first category depends heavily on government revenue performance and may experience slower releases when fiscal pressures arise.

The second category, however, involves funds disbursed directly by development partners for specific infrastructure or social development programmes and does not necessarily appear as cash flows in federal government accounts,” it added.

According to the ministry, focusing solely on MDA cash releases gives an incomplete picture of capital spending.

Data cited in the brief shows that in 2024, total capital expenditure reached N11.59 trillion, representing about 84 percent performance.

For 2025, provisional data as of November indicates capital spending of about N11.7 trillion with performance at roughly 76 per cent.

“These figures demonstrate that capital projects are ongoing and execution continues. The financing mix differs, but implementation has not been abandoned,” the ministry stated.

The government also addressed concerns over rising debt service costs, stressing that recent increases do not reflect fiscal recklessness.

In 2024, debt service payments rose to N12.63 trillion compared to the N8.56 trillion originally budgeted, representing an overshoot of about N4 trillion.

Similarly, in 2025, debt service rose to N14.57 trillion against a budget projection of N13.12 trillion.

The ministry attributed the increase largely to macro economic factors, including currency depreciation and higher domestic interest rates.

Because a portion of Nigeria’s external debt is denominated in foreign currencies, depreciation of the naira automatically raises the local currency cost of servicing those obligations.

In the same way, tighter monetary policy and higher interest rates aimed at stabilising inflation and supporting the currency have increased the cost of servicing domestic debt.

The government said that despite these pressures, it has prioritised debt servicing, payment of salaries and pensions, and continued capital investment while avoiding monetary financing.

“This reflects fiscal discipline under strain rather than fiscal collapse,” the ministry said.