by NIyi Jacobs
Small and medium-sized enterprises (SMEs) in Nigeria could face severe financing constraints in 2026 as the Federal Government plans to borrow a record ₦14.30 trillion from the domestic market to fund its budget deficit, analysts have warned.
According to the 2026–2028 Medium-Term Expenditure Framework (MTEF), Nigeria’s total budget deficit for 2026 is projected at ₦20.12 trillion, with more than 71 per cent expected to be financed through local borrowing. While analysts say the domestic debt market has sufficient depth to absorb the borrowing, they caution that the scale of government demand could significantly limit access to credit for private businesses, particularly SMEs.
Market analysts warn that aggressive domestic borrowing by the government could crowd out private sector credit, pushing banks and institutional investors toward low-risk government securities at the expense of business lending. As government yields rise, borrowing costs for SMEs are expected to climb sharply, with estimates suggesting lending rates could reach between 25 and 30 per cent.
Such rates, analysts say, are unsustainable for most small businesses already struggling with inflation, high energy costs and weak consumer demand. As liquidity is absorbed by government securities, SMEs may face reduced access to loans or be forced to scale back operations and expansion plans.
While increased local borrowing reduces foreign exchange exposure, experts warn that excessive reliance on the domestic market risks slowing private-sector growth and weakening economic recovery if SMEs are squeezed out of credit markets
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