Nigeria, Over the past two years, Nigeria—Africa’s most populous country—has implemented difficult reforms to tackle long-standing obstacles weighing on the economy. While the reforms are starting to show results, poverty and food insecurity remain high, and the uncertain global environment presents additional challenges. As discussed in our latest annual economic health check of the West African nation, the right policies can help Nigeria realize its potential as an African and global economic powerhouse.
Upon assuming office in 2023, the current administration of President Bola Ahmed Tinubu, GCFR, inherited an economy grappling with low growth, a surging poverty rate of 42 percent, and limited access to foreign exchange, which fueled a costly parallel market. Public finances were further strained by an opaque and expensive fuel subsidy system that also led to recurrent petrol scarcity, while central bank financing of the fiscal deficit exacerbated inflation.
In response, Nigerian policymakers initiated bold reforms, including the liberalization of the foreign exchange market, cessation of central bank deficit financing, and the critical reform of fuel subsidies in 2023. Efforts to strengthen revenue collection, historically one of the world’s weakest, have also been intensified. These measures have led to a notable increase in international reserves, improved access to foreign exchange in the official market, a successful return to international capital markets last December, and recent upgrades by rating agencies. The emergence of a new domestic, private refinery further positions Nigeria for value chain enhancement in a fully deregulated market.
Despite this encouraging progress, significant hurdles remain. Inflation continues to exceed 20 per cent, and inadequate infrastructure, particularly in electricity, stifles economic activity. Poverty and food insecurity remain high, compounded by the absence of an effective social safety net to cushion vulnerable populations from economic shocks. The global landscape also presents elevated uncertainty and high borrowing costs, with Nigeria particularly susceptible to volatile international oil prices, which constituted 30 percent of government revenues in 2024.
To navigate these challenges and realize its potential as a global economic powerhouse, Nigeria must focus on three key priorities. Firstly, achieving stronger and more sustained growth is imperative to lift millions out of poverty and food insecurity. This long-term endeavor must be complemented by scaling up the existing cash transfer system to ensure inclusive growth. Secondly, an effective budget framework is essential for economic development, requiring realistic assumptions, robust expenditure management, and transparent implementation to strengthen accountability.
Concurrently, monetary policy must continue its decisive efforts to curb inflation and reduce economic uncertainty. Thirdly, the government must persistently increase domestic revenues to fund critical investments in agriculture, infrastructure (including electricity access), and climate adaptation. Ongoing tax reforms aim to simplify tax payments and ensure compliance. It is crucial that the substantial financial savings from fuel subsidy removal are effectively channelled into priority spending, as the current proportion of revenue dedicated to interest payments leaves insufficient funds for vital investments in human capital and infrastructure.
Nigeria’s immense potential is undeniable, but its full realisation hinges on sustained reforms and the establishment of a robust social safety net to ensure that no citizen is left behind in the journey towards economic prosperity.
