How Nigeria Can Unleash its Economic Potential

IMF News, July 7, 2025

Source details

Publication date: July 7, 2025.
Core message: Increasing revenues, establishing an effective budget framework, and scaling up the cash transfer system can support Nigeria’s progress.
Context: Article based on the Staff Report for the 2025 Article IV Consultation with Nigeria.

Between 2014 and 2023, real per capita GDP declined on average by 0.7 percent annually.
In 2023, the poverty rate stood at 42 percent.
Limited access to dollars forced reliance on the parallel currency market, where people paid a much higher price than the official rate.
Public finances were strained by an opaque fuel subsidy system that caused recurrent petrol scarcity.
Central bank financing of the fiscal deficit pushed up inflation.

In 2023 the new government and the Central Bank of Nigeria:
- liberalized the foreign exchange market,
- stopped central bank financing of the fiscal deficit,
- reformed fuel subsidies.
The government strengthened revenue collection, described as "still one of the world’s weakest."
Since these reforms:
- international reserves have increased,
- anyone can now access foreign exchange in the official market,
- Nigeria successfully returned to international capital markets last December,
- Nigeria was recently upgraded by rating agencies,
- a new domestic, private refinery is positioning Nigeria up the value chain in a fully deregulated market.

Inflation still exceeds 20 percent.
Poor infrastructure, especially for electricity, inhibits economic activity.
Poverty and food insecurity remain high.
Nigeria lacks an effective social safety net to cushion the impact of shocks on the most vulnerable.
Global environment challenges: elevated uncertainty and high borrowing costs.
Nigeria is especially affected by volatile international oil prices since oil revenues account for a large proportion of government revenues—a figure that stood at 30 percent in 2024.

Priority 1: Stronger and more sustained growth
- Objective: lift millions out of poverty and food insecurity.
- Short-term action: scale up the existing cash transfer system to make growth more inclusive.
Priority 2: Establish an effective budget framework
- Components: realistic budget assumptions, strong expenditure management, transparent implementation and reporting.
- Expected outcomes: deliver effective investments in people and infrastructure; strengthen accountability.
- Monetary policy role: continue to decisively tackle inflation and reduce economic uncertainty.
Priority 3: Increase domestic revenues
- Rationale: finance substantial funding needs in growth-enabling areas such as agriculture, infrastructure (including access to electricity), and climate adaptation.
- Tax reform aims: make it easier to pay taxes and ensure that everyone who owes taxes pays them.
- Sequencing: once the ongoing cost-of-living crisis abates and the cash transfer system is fully operational, there will be room to align tax rates with those in neighboring countries.
- Immediate concern: the share of revenue that goes to interest spending leaves too little for investment in people and infrastructure.
- Critical action: ensure the substantial financial savings from the removal of fuel subsidies flow to the government to fund priority spending.

Real per capita GDP change (2014–2023): declined on average by 0.7 percent annually.
Poverty rate (2023): 42 percent.
Inflation: still exceeds 20 percent.
Oil revenues share of government revenues (2024): 30 percent.

Nigeria’s potential is beyond doubt, but achieving it will require continued reforms and an effective social safety net to carry the most vulnerable along.
Authors: Axel Schimmelpfennig (IMF mission chief to Nigeria and assistant director in the IMF’s African Department) and Christian Ebeke (IMF resident representative in Nigeria).

This article is based on the Staff Report for the 2025 Article IV Consultation with Nigeria.