The federal government has been advised to cut down its N54.99 trillion 2025 budget to reflect a less favourable oil price environment.
The International Monetary Fund (IMF), which made this call, also warned that the country remained vulnerable to external shocks despite recent macroeconomic gains.
In its latest Article IV Consultation with Nigeria, the IMF commended the bold reforms undertaken by Nigerian authorities in the past two years, including the removal of fuel subsidies, the cessation of central bank financing of fiscal deficits, and the liberalisation of the foreign exchange (FX) market. These measures, it said, brought stability to the nation’s currency and eventually led to a decline in inflation.
The Fund, however, stressed that more effort was needed to consolidate these gains and ensure they translate into broader benefits for the population, particularly amid growing downside risks.
“The 2025 budget needs to be recalibrated to lower oil prices,” IMF directors stated in a report, emphasising the importance of maintaining a neutral fiscal stance that prioritises growth-enhancing investments.
The Fund warned that a drop in global oil prices or higher external financing costs could jeopardise Nigeria’s fragile recovery, strain fiscal buffers, and trigger exchange rate pressures.
It noted that implementing the N54.99 trillion budget without adjusting for more conservative assumptions could widen the fiscal deficit from 4.1 per cent to around 4.7 per cent, further aggravating Nigeria’s debt burden.
Oil remains a cornerstone of Nigeria’s economy, accounting for the bulk of exports and fiscal revenues. While recent improvements in oil output helped lift GDP growth to 3.4 per cent in 2024, the IMF cautioned that this pace remained inadequate on a per capita basis.
“Growth has been steady but too low in per-capita terms, and inflation remains high,” it said, adding that poverty and food insecurity had risen despite the macroeconomic progress.
Looking ahead to 2025, the IMF projects similar GDP growth at 3.4%, buoyed by improved oil production, the commissioning of a new domestic refinery, and a resilient services sector.
The Fund stated that forex stabilisation and improvements in food production brought inflation down to 23.7 per cent year-on-year in April 2025, from a 31 per cent annual average in 2024, based on the rebased consumer price index (CPI) released by the Nigerian Bureau of Statistics (NBS).
Stating that reforms to the forex market and foreign exchange interventions had brought stability to the naira, the IMF staff report noted that inflation was expected to decline further in the medium term, with continued tight macroeconomic policies and a projected easing of retail fuel prices.
Pointing out that fiscal performance improved in 2024, it said: “Revenues benefited from naira depreciation, enhanced revenue administration, and higher grants, which more than offset rising interest and overheads spending.”
To lift Nigeria’s growth outlook, improve food security, and reduce fragility, the IMF directors highlighted the importance of tackling insecurity, red tape, low agricultural productivity, and infrastructure gaps — including boosting electricity supply. They also called for improved health and education spending and making the economy more resilient to climate events.
They further noted that addressing structural impediments to private credit extension is also needed to support growth, even as they recognised actions to strengthen the banking system, including the ongoing process of increasing banks’ minimum capital.
LEADERSHIP recalls that the Central Bank of Nigeria (CBN) had directed banks to shore up their capital base within a two-year period, which will elapse at the end of the first quarter of 2026.
The IMF report also welcomed the authorities’ efforts to boost financial inclusion and promote capital market development, while emphasising the importance of moving to robust, risk-based supervision for mortgage and consumer lending schemes, as well as the fintech and crypto sectors.
The directors also called for accelerating the delivery of cash transfers to assist the poor. They commended the authorities for advancing the tax reform bill, saying it is an important step towards enhancing revenue mobilisation and creating fiscal space for development spending, while preserving debt sustainability.
The report further welcomed steps taken by the authorities to build reserves and support market confidence and praised reforms to the foreign exchange market that supported price discovery and liquidity.
