IMF Report Raises Questions About Nigeria's Economy

The IMF's staff report on its 2026 Article IV Consultation with Nigeria is full of political language. One person I spoke with last week said it is even unclear. What should readers think about the claim that last year's government spending was partly funded by a "CBN deposit drawdown of 1.1 percent of GDP, which has the same liquidity impact as previous 'ways and means' (overdraft) financing"? Or that at the time the report was presented, "the estimated savings of the fuel subsidy removal completed in late 2024 (estimated at up to 2 percent of GDP) do not appear to have accrued to the budget in 2025"? Did we go back to borrowing to cover part of the federal government's deficit? And are our public finances any clearer than before? Some say the country just took loans to pay for the fuel subsidy. Now, with the subsidy gone, we continue to borrow for other expenses. Budget savings? In your dreams!

The fund raised many concerns about unclear financial arrangements and their negative effects on the economy. Off-budget spending seems to have increased last year. The financing methods were too "complex" for the experts at the fund. This means the average Nigerian cannot make sense of these numbers. Fiscal reporting is still weak. Should we care that last year, the IMF estimated a fiscal "statistical discrepancy" of 2.7 percent of GDP? What does this mean? It suggests that spending might not have been fully included in the published fiscal reports, which is worrying. But is this as concerning as the fact that last year, the federal government's interest payments consumed about 53 percent of federal revenue?

Some say this is just nitpicking. To some extent, the ratio of interest payments to public revenue might limit spending, but it’s not at crisis levels. Besides, the report is seen as positive overall. Nigeria's external position improved last year, with a current-account surplus of 4.8 percent of GDP and gross reserves rising from US$40 billion to US$46 billion. This is both a cause and a result of a more stable economy. If this stability boosts investor confidence over time, we might see better access to international capital markets. Improved inflation numbers in 2025 have different implications. On one hand, they show better management of monetary policy, but on the other hand, global fuel and food crises this year could force tighter policies to keep inflation from rising again.

Words like “good”, “bad”, “better” and “worse” are all about comparison. The important comparisons matter even more. In this report, the Nigerian economy is mainly compared to its past performance, not to other countries it competes with for loans and investment. This means that if you lower the bar enough, almost anyone can pass. Just ask the Joint Admission and Matriculation Board (JAMB). There is still much work to do on poverty and food insecurity, as the report acknowledges. The same goes for government finances.

It is easy to assume that government revenues are low. The IMF estimates Nigeria's consolidated government revenue is only about 10 percent of GDP, which is too low for a country with our development needs. Sure, better tax collection is good. Higher VAT and other tax measures are welcome too. But what about cutting government spending? The Tinubu government has largely ignored the need for reforms to make the economy more efficient and productive. The fund rightly points out two risks from the upcoming presidential elections: rising poverty and food insecurity may push the government to spend more, and the momentum for reforms could slow down as elections get closer.

In a way, the fund’s report shows that the economy is financially stronger today than it was three years ago, but still not strong socially. This just confirms what many Nigerians already know about the economy: “The stabilisation phase has largely succeeded, but Nigeria now needs to turn macroeconomic gains into better living standards.”

Supporters of the Tinubu government should note that inflation is not the main challenge for those managing Nigeria's economy. It is also not just about building reserves or managing excessive borrowing. The gap between improving economic indicators and ongoing poverty, food insecurity, and low public revenues must be closed sustainably. Without more inclusive growth and fixes to government finances, the political stability of the Tinubu government's reforms could be at serious risk.