## Macroeconomic Implications of Climate Challenges: Nigeria

_Selected Issues Papers, July 11, 2025_

## Source details

**Canonical URL:** [Macroeconomic Implications of Climate Challenges: Nigeria](https://www.imf.org/en/publications/selected-issues-papers/issues/2025/07/11/macroeconomic-implications-of-climate-challenges-nigeria-568586)

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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

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### 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.

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## Content in this bundle

- **1. Climate Disasters**
  - [1. Climate Disasters (Markdown version)](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025097-source-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [1. Climate Disasters (PDF)](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025097-source-pdf.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/selected-issues-papers/issues/2025/07/11/macroeconomic-implications-of-climate-challenges-nigeria-568586_