The redesigned tax laws, a fresh national budget, and a CBN public debt-to-GDP projection of 34.68% mean new changes for Nigeria’s finances in 2026. While the World Bank projected Nigeria’s debt to decline for the first time in a decade to 39.9% of GDP by the end of 2025, the reality is more complex.

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By June 2025, public debt stood at $99.66 billion, and increased to $103.94 billion in the next quarter. Despite the $4.28 billion surge, the apex bank maintains that the trajectory is sustainable. 2026 seems poised for transformation and recovery, yet public debt remains high, and the fiscal environment remains volatile, leading to a critical question: Is this transformation truly sustainable, and what does it mean for the average Nigerian?

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Nigeria’s Public Finance and Debt Trajectory

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Imagine getting a promotion that pays ₦34.33 trillion annually. You are excited until you realise your bank automatically deducts 45% of your pay the moment it hits, just to service loans from your past. Even with that massive dent, your debts are not cleared, and you may have to take out new loans to keep the lights on through the year. You have plans to make more income, but there’s no guarantee the market will work for you, and your expenses keep piling up. This has been your cycle for years: higher income, even higher expenses, and a debt trap that keeps growing. Unfortunately, this is not just a hypothetical scenario; this is Nigeria’s 2026 fiscal history.

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The 2026 Budget of Consolidation, Renewed Resilience, and Shared Prosperity hinges on improved security and macroeconomic stability, but the numbers tell a story of fiscal strain. The budget projects ₦34.33 trillion in earnings against a massive ₦58.18 trillion expenditure, leaving a deficit gap of ₦23.85 trillion. A staggering ₦15.52 trillion is earmarked for debt servicing, meaning nearly half of every naira earned, will be used to pay previous debts. While the government expects to obtain its revenue through a mix of oil, non-oil, and tax streams, there is uncertainty about its attainability. If global oil prices dip or the 2025 tax reforms fail to yield the expected receipts, the deficits will balloon. Nigeria is already defined by its borrowing culture, and any shortfall in revenue will lead back to the same debt cycle: more debts and more debt service payments.

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Looking back, Nigeria’s debt cycle is even clearer. In 2024, Nigeria earned ₦21.7 trillion in revenue; however, with an initial expenditure of approximately ₦28.7 trillion and a supplementary expenditure of ₦6.2 trillion, the deficit gap widened significantly.

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By 2025, even as expected revenue climbed to ₦41.8 trillion, the budget ballooned to over ₦54.99 trillion, leaving a ₦13.19 trillion gap. As revenue grows, expenditure grows faster, further widening the budget deficit. Nigeria’s constant reliance on borrowing could prolong the nation’s debt servicing burden. Veriv Africa’s Macroeconomic Outlook for 2026 warns that continued debt increment will erode the benefits of the current strategic reforms.

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What Role Does The 2025 Tax Law Play In Nigeria’s Fiscal Journey?

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The 2025 Tax Law, which took full effect on January 1, 2026, is projected to be the engine of Nigeria’s fiscal recovery. The Nigeria Revenue Service (NRS) has set a large revenue target of ₦40.7 trillion for the year, bolstered by the agency’s new mandate to collect petroleum royalties alongside traditional taxes. Following a standout 2025, where the NRS exceeded its target of ₦25.2 trillion and reached ₦28.23 trillion. This is a 30.3% increase from 2024, driven largely by non-oil growth. Beyond the trillions, the new law introduces a more progressive approach, exempting Nigerians earning below ₦800,000 and placing zero VAT on essential food items and medical products. However, the Veriv Africa Macroeconomic Outlook suggests a cautious path ahead. While the laws are transformative, it remains to be seen if tax receipts will match a budget that continues to grow faster than its funding. It is possible that the deficit gap could swallow up the benefits of the new tax system.

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How Does This Affect Taxpayers?

To answer this question, we introduce two individuals: Toyin and Ikenna. Toyin earns ₦660,000 annually working as a salesgirl in Tejuosho market. Ikenna, a software developer, earns ₦24,000,000. Both of them face different realities under the 2025 tax law. Toyin is exempt from personal income tax and gets relief in VAT-free essential goods. However, Ikenna sits in a higher bracket; he pays millions in tax, contributing significantly to the national revenue. While their contributions differ, their experience of government expenditure is the same. The 2026 budget allocates ₦15.25 trillion and ₦26.08 trillion to recurrent and capital expenditure, respectively. But a staggering ₦15.52 trillion is reserved for debt servicing, a figure that claims a huge chunk of the expected revenue. This means that even as Ikenna pays his taxes diligently, a huge part of his contribution is diverted to servicing debts before it can be invested in Nigeria’s future. For Toyin, the progressive tax system is a welcome relief; however, it cannot fix the crumbling infrastructure or inflation caused by a government that continues to borrow. The 2025 tax law offers a fairer way to collect money, but it does not improve government spending.

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Conclusion

Nigeria’s 2026 fiscal journey faces pressure and progress simultaneously. On one hand, the 2025 tax laws and the ambitious ₦40.7 trillion NRS target represent real fiscal progress. On the other hand, the ₦15.52 trillion debt service bill and the ₦23.85 trillion deficit reveal a widening gap that threatens to stunt long term economic growth. As long as government spending continues to outpace revenue growth, the national story will remain one of debt management rather than wealth creation.

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To escape the debt trap, the government must embrace fiscal discipline. As the saying goes, Nigeria needs to cut its coat according to its cloth, ensuring that expected revenue eventually matches or surpasses expenditure to stop the cycle of borrowing. By prioritising productive spending in critical sectors like energy, agriculture, and education, the country can create the multiplier effect needed to grow the economy. Ultimately, taxpayers like Ikenna and Toyin need to see their contributions reflected positively in their communities. A true fiscal transformation is possible, but it requires prioritising increased productive spending and aligning budget revenue and expenditure.

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