Macroeconomic Implications of Climate Challenges: Nigeria

Selected Issues Papers, July 11, 2025

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Macroeconomic Implications of Climate Challenges: Nigeria

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Bibliographic details

• Authors: Reginald Darius, Aurelien Billot, Emanuele Massetti, Nate Vernon-Lin
• Published: July 11, 2025
• Series: Selected Issues Papers
• DOI: https://doi.org/10.5089/9798229018692.018

Summary / Key findings

• Climate events significantly impact Nigeria's growth outlook, fiscal sustainability, balance of payments and financial sector, potentially undermining macroeconomic stability.
• Extreme weather events and their frequency have a direct effect on growth and the balance of payments.
• An expected sea level rise would pose significant economic cost for Nigeria, damaging infrastructure in coastal areas such as Lagos—the main commercial and financial center.
• While relatively small, the financial sector is exposed to spillovers to asset quality and may even be directly impacted via its physical presence in Lagos.
• Fiscal policy will have to address lower tax revenues from lower growth and higher demands for spending on disaster relief, infrastructure repair, and investments in climate adaptation and mitigation.
• As a result, Nigeria will face fiscal and associated external financing gaps.

Macroeconomic channels and impacts

• Growth outlook:
  • Extreme weather events and their frequency exert direct negative effects on growth.
  • Sea level rise poses concentrated infrastructure and economic costs in coastal areas (example: Lagos).
• Balance of payments:
  • Extreme weather events affect the balance of payments directly through economic disruptions.
  • Fiscal and external financing gaps are anticipated as climate impacts increase spending needs and reduce revenues.
• Financial sector:
  • The financial sector is relatively small but exposed to spillovers to asset quality.
  • Direct physical exposure exists through financial sector presence in Lagos.

Fiscal and external implications

• Revenue and expenditure dynamics:
  • Lower tax revenues are expected as a consequence of lower growth.
  • Higher demands for spending will arise for disaster relief, infrastructure repair, and investments in climate adaptation and mitigation.
• Financing gaps:
  • Nigeria will face fiscal and associated external financing gaps due to simultaneous revenue shortfalls and increased spending needs.

Policy considerations and priorities

• Fiscal policy responses:
  • Address lower tax revenues resulting from weaker growth.
  • Scale up spending for disaster relief and infrastructure repair.
  • Increase investments in climate adaptation and mitigation.
• Financial sector resilience:
  • Monitor and manage asset-quality spillovers arising from climate-related economic disruptions.
  • Consider the geographic concentration of financial institutions and potential direct physical risks in coastal cities such as Lagos.

Content in this bundle

• 1. Climate Disasters
  • 1. Climate Disasters (Markdown version)
  • 1. Climate Disasters (PDF)