Rising Pre-election Liquidity Could Fuel Inflation – Economist

The chief executive of Arthur Steven Asset Management Limited, Olatunde Amolegbe, has said that Nigeria’s tax reforms are expected to strengthen government revenue mobilisation.

Speaking at the Capital Market Correspondents Association of Nigeria (CAMCAN) 2025 Macroeconomic Review and 2026 Outlook, Amolegbe said rising pre-election liquidity could pose fresh risks to inflation, exchange rate stability and financial markets.

According to him, fiscal policy in 2025 marked a clear shift toward structural reforms “focused on boosting revenue without worsening macroeconomic pressures,” as the government grappled with high debt servicing costs, fiscal deficits and weak oil revenues.

Amolegbe said the federal government had prioritised broadening the tax base, improving compliance, and strengthening administration rather than increasing major tax rates.

He said that move led to the enactment of the Nigeria Tax Reform Acts and the creation of the Nigeria Revenue Service with enhanced digital and enforcement powers.

“The success of the 2025 reforms depends on effective implementation, digitalisation, and compliance,” as he warned that “weak enforcement or policy reversals could limit their impact. The 2025 tax reforms have varied impacts across individuals, investors, and corporates, reflecting a balance between revenue mobilisation and economic stability.

“For households, retaining the 7.5 per cent VAT rate, raising the tax-free income threshold, and capping the top personal income tax rate at 25 per cent helped limit the direct tax burden amid high inflation, though indirect costs may arise through higher business prices.

“The reforms mark a shift toward a more structured and predictable tax system, with higher compliance requirements but improved fairness and policy clarity, potentially supporting medium-term investment confidence if consistently implemented”, he stated.

On the markets, Amolegbe noted that the reforms had implications for investors, with the report stating that “new measures reduced after tax returns on some assets,” encouraging “longer term and more tax efficient investment strategies.”

Looking ahead, Amolegbe warned that pre-election dynamics could test these gains.

According to the outlook, “elevated liquidity ahead of elections and strategic portfolio adjustments” are likely in 2026 as Nigeria approaches the 2027 general elections.

He cautioned that while such liquidity could support equities, it could also “drive sharp market volatility in stocks and forex,” with investors closely watching “potential inflation spikes and currency swings.”

On inflation, he noted that price pressures eased in 2025, with headline inflation declining sharply after CPI rebasing and continuing to moderate, but warned that excess liquidity could threaten this trend if not properly managed.