IMF sees mixed outlook for Nigeria as inflation risks temper revenue gains

…Flags end of ‘easy wins’ for African economies after strong 2025

…Urges governments to treat windfall revenues as temporary, rebuild buffers

Washington DC|| Nigeria is facing a mixed economic outlook as potential revenue gains from higher oil prices are being offset by renewed inflation pressures that are pushing up living costs, the International Monetary Fund (IMF) has said.

Speaking Thursday in Washington during a press conference on the Sub-Saharan African regional economic outlook, Abebe Aemro Selassie, director of the IMF’s African Department, said Nigeria’s recent macroeconomic reforms have strengthened stability, but external shocks are now creating new and more difficult policy trade-offs.

Across the region, Selassie said 2025 marked a year of strong stabilisation gains, with Sub-Saharan Africa expanding by 4.5 percent, the fastest pace in more than a decade, supported by domestic reforms and improved external conditions.

Nigeria and other large economies benefited from exchange rate realignments, subsidy reductions and tighter monetary policy frameworks, which helped restore macroeconomic stability.

Inflation across the region eased to a median of 3.4 percent at the end of 2025, down from 4.8 percent the previous year, while fiscal deficits narrowed and public debt dynamics improved in several countries. “2025 was a year of hard-won stabilisation gains,” Selassie said.

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But that momentum is now under strain as global conditions deteriorate. “As we enter 2026, these gains are under pressure,” he said, pointing to the war in the Middle East, which has pushed up oil, gas and fertilizer prices, raised shipping costs and tightened global financial conditions.

The IMF now expects regional growth to slow to 4.3 percent in 2026, down 0.3 percentage point from its pre-war forecast, as the shock feeds through unevenly across economies.

For Nigeria, an oil-exporting economy, higher crude prices could support government revenues, offering some fiscal relief. But the Fund warned these gains are uncertain and could be eroded by volatility and policy missteps, particularly in an environment of rising domestic price pressures.

At the same time, Nigeria is confronting higher living costs as global supply disruptions push up food, transport and energy prices, feeding into broader inflationary pressures and complicating the policy mix between growth support and price stability.

The IMF said the impact of the shock is highly uneven across the region, as oil exporters stand to benefit from stronger revenues but remain exposed to price volatility and pro-cyclical fiscal risks. Oil-importing and low-income economies face deteriorating trade balances, rising costs of living and weaker buffers.

Median inflation, which fell to 3.4 percent at the end of 2025, is projected to rise to about 5 percent by the end of 2026. The Fund warned that higher food and fuel prices risk worsening already fragile social conditions across the continent, with a 20 percent increase in global food prices potentially pushing more than 20 million people into food insecurity.

Compounding these pressures is what the IMF described as a structural decline in official development assistance, which is hitting fragile and low-income economies particularly hard.

Unlike past cycles where aid cuts were followed by rebounds, Selassie said the current retrenchment appears more permanent. “This time is different,” he said. “What we are seeing now is much more structural.”

The combination of external shocks and reduced aid is, in the IMF’s assessment, effectively marking the end of “easy wins” for African economies — a period in which relatively straightforward macroeconomic adjustments delivered rapid stabilisation gains.

Going forward, sustaining progress will require more difficult trade-offs and deeper reforms.
IMF’s near-term policy priorities for the region include anchoring inflation expectations and protecting vulnerable groups through targeted and time-bound support, while maintaining fiscal credibility.

The IMF said oil exporters, including Nigeria, should treat windfall revenues as temporary and rebuild buffers, while oil importers should safeguard critical social spending and strengthen domestic revenue mobilisation.

Over the medium term, the Fund emphasised the need to accelerate structural reforms to sustain growth and improve resilience. These include improving governance, strengthening the business environment and deepening domestic financial markets to support private sector-led growth.

Regional integration under the African Continental Free Trade Area (AfCFTA) was highlighted as a key lever to cushion shocks and expand opportunities in an increasingly fragmented global economy.

The IMF also pointed to the potential of artificial intelligence to boost productivity in agriculture, healthcare and public services, provided countries invest in infrastructure and skills.

“How to hold the line… while absorbing yet another shock is the central challenge,” Selassie said.

While growth is expected to pick up modestly in 2027, the IMF cautioned that risks remain tilted to the downside, particularly if global financial conditions tighten further or geopolitical tensions persist.