Nigeria’s economic balancing act: Using reforms to overcome uncertainty
Nigeria’s economic landscape is marked by uncertainty, as the country navigates a complex web of global trends, domestic challenges, and reform efforts. Despite recent strides in stabilising the economy, the International Monetary Fund (IMF) warns that risks remain tilted to the downside. The government’s target, at least in the short run, must be to use […]
Nigeria’s economic landscape is marked by uncertainty, as the country navigates a complex web of global trends, domestic challenges, and reform efforts. Despite recent strides in stabilising the economy, the International Monetary Fund (IMF) warns that risks remain tilted to the downside. The government’s target, at least in the short run, must be to use its homegrown reforms to beat the global challenge of uncertainty while pursuing its growth objective.
Nigeria’s economic growth is poised for a modest expansion, with projections indicating a 3.4% growth rate in 2025, driven by higher crude oil production and stronger performance in key sectors like finance, manufacturing, ICT, construction, and real estate.
Nigeria is currently enjoying its reform momentum. The government has implemented significant reforms, including fuel subsidy removal and FX market liberalisation, both of which are designed to boost growth and attract investments. The government has also streamlined its fiscal activities, by ending an obnoxious flow of funds through the Ways and Means of the central bank into the fiscal space leading to a bloated government spending.
To its credit, the new administration has boldly unified the multiple exchange rates that characterized the nation’s foreign exchange market. Since then, the naira has experienced a high degree of stability, with the difference between the official and black-market rates significantly reduced.
The latest IMF/World Bank meetings in Washington, D.C., ended with emphasis on uncertainty, growth and resilience. There is a threat of uncertainty overshadowing the global economy. “More than half of the slowdown in [medium-term] growth is because of the slowdown in productivity growth,” said IMF Managing Director, Kristalina Georgieva at one of the seminars held during the meeting.
It is within this context that Nigeria will seek to drive its growth prospects. The economy will demonstrate resilience in order to experience growth. Both themes will therefore reflect the quality of policies that the government will employ in an effort to provide a counterweight to the global uncertainty. Global uncertainties have produced or been joined by their local equivalents to create greater challenges for the local domestic economy. Among the local issues to be handled are inflation and food insecurity that could lower the country’s ability to meet the food requirements of the populace.
Nigeria must focus on the appropriate growth levers that can drive the process of increased production of goods and services. These must be sectors or industries with the potential to create jobs and employ more Nigerians in well-defined, value-creating jobs. Since these kinds of jobs are best created by the private sector, the starting point therefore should involve an acceleration of the diversification drive – to move the economy away from heavy dependence on oil.
In absolute terms, this does not imply reducing the level of oil production, increasing the non-oil economy in such a way that relatively, the share of oil in the total value created in the economy will become lower, without actually reducing its absolute value.
Linked to the above points is private-sector investment. There cannot be meaningful economic growth in an economy with a stunted private sector. The government must therefore employ a policy framework that stimulates domestic industrial production by “crowding in” the private sector. A combination of favourable monetary and fiscal policies will be needed to ensure that the industrial sector is strong enough to engage in productive activities and experience growth. Nigeria has in the past two years operated an environment that crowded out the private sector through a high-interest rate regime. Crowding the private sector is certain to result in negative growth.
That itself was a derivative of the authorities’ drive to curb a policy-induced inflationary pressure via a contractionary monetary policy. While that policy is being celebrated for the stabilising impact, this should not be overstretched without the risk of collateral damage. It is imperative therefore that subsequently, curbing inflation and maintaining currency stability demands a disciplined monetary stance.
On government spending, the tax administration starting from January 2027 presents an opportunity to further enhance non-oil revenue generation and expand the fiscal space. With this, the government should be in a position to harmonise the intersection between fiscal and monetary policies thus eliminating or minimizing the unharmonious relationship between the two that we have witnessed in recent years.
The remaining part of the year and going into the new year must be devoted to further consolidation of the gains made so far. This phase is critical to further lay the foundation for the achievement or moving towards the mark of the one-trillion-dollar economy mark. This explains why the government must keep watch over these three words: growth, resilience, and uncertainty. All three define the challenge we face going forward. The first two will play key roles in the government’s efforts to confront the third one.