Nigeria’s Reforms Earn IMF Nod But Face Uphill Battle Against Economic Headwinds

“These reforms have put Nigeria in a better position to navigate the external environment,” Schimmelpfennig said.

“But significant uncertainty remains, and more work is needed to anchor inflation, expand buffers, and foster private sector-led recovery.”

The reforms referenced by the IMF are sweeping. In less than two years, Nigeria has scrapped its costly fuel subsidies, unified its fragmented foreign exchange market, and ended the controversial practice of central bank deficit financing, which reportedly reached N30 trillion just between 2015 and 2023.

These moves, long advocated by economists, aim to tackle chronic macroeconomic distortions that have plagued Nigeria’s economy for years.

The government’s decision to remove fuel subsidies—once politically untouchable—was a cornerstone of its fiscal reset.

The IMF acknowledged this as a “difficult but necessary” move, emphasising that subsidy savings must now be redirected to high-impact investments and social support.

Simultaneously, the CBN has allowed the naira to float more freely, narrowing the gap between official and parallel market rates.

These adjustments are helping correct deep imbalances in Nigeria’s external accounts and restoring some investor confidence.

Nigeria reported a Balance of Payments (BOP) surplus of $6.83 billion for the 2024 financial year, a notable reversal from the deficits of $3.34 billion in 2023 and $3.32 billion in 2022, according to the CBN figures.

Current and capital account recorded a surplus of $17.22 billion in 2024, underpinned by a goods trade surplus of $13.17 billion.

Remittance inflows, which Cardoso and his team monitor closely, remained resilient, with personal remittances rising by 8.9% to $20.93 billion.

Inflows through International Money Transfer Operators (IMTOs) rose 43.5 percent to $4.73 billion in 2024, up from $3.30 billion in 2023.

Portfolio investment inflows more than doubled, increasing by 106.5% to $13.35 billion, while resident foreign currency holdings grew by $5.41 billion, indicating stronger confidence in domestic economic stability.

Although foreign direct investment fell by 42.3% to $1.08 billion, the overall financial account posted notable gains.

Consequently, the country’s external reserves increased by $6.0 billion to $40.19 billion by year-end 2024, bolstering Nigeria’s external buffer.

The CBN attributes this positive shift to the successful implementation of extensive macroeconomic reforms, improved trade performance, and a resurgence of investor confidence in Nigeria’s economy.

Yet, the reforms are also inflicting short-term pain.

Inflation rose 24.23 percent in March 2025, up from 23.18 percent the previous month, with food prices equally rising 21.79 percent from 20.01 percent.

Millions are struggling with rising costs amid low wages and scarce jobs. “Gains have yet to benefit all Nigerians,” the IMF acknowledged, adding that poverty and food insecurity remain “high.”

Budgeting in a lower oil price world

The IMF noted that Nigeria’s fiscal strategy for 2025 must reflect new global realities, particularly weaker oil prices.

Brent crude, Nigeria’s main export benchmark, dropped to $67.01 per barrel just today (April 21) —well below the optimistic levels of $75 per barrel baked into the current budget. Following these developments in the crude oil price trends, largely impacted by progress in nuclear negotiations between the U.S. and Iran and a subdued global demand forecast, Russia has had to lower its own 2025 brent crude forecast from $81.3 to $68 per barrel, citing weaker-than-expected demand.

Consequently, IMF’s key recommendation to Nigeria: adopt a “neutral fiscal stance” that neither overstimulates nor sharply contracts the economy. That, paired with tight monetary policy, could help cool inflation.

Crucially, the IMF urged authorities to “channel savings from fuel subsidy removal to the budget,” arguing that this is the only way to protect investment in infrastructure and human capital without blowing out the deficit.

The implementation of the ₦54.99 trillion 2025 federal government budget already underway will be a test of Nigeria’s discipline. With revenue-to-GDP- just about 9.4 percent – and still among the lowest globally, the government must tread a narrow path: spend enough to support recovery, but not so much as to undo the macro gains, the IMF signaled.

Central bank holds the line

Under Governor Yemi Cardoso, the CBN has tightened policy aggressively, lifting the benchmark interest rate to 27.50 percent- one of the highest in Africa.

This move, while painful for borrowers, aims to rein in spiraling inflation and stabilize the naira.

The IMF applauded the CBN’s “data-dependent” approach and called on it to maintain the hawkish stance until inflation is firmly on a downward path.

Schimmelpfennig also recommended that Nigeria publish a clear disinflation trajectory, which could help anchor market expectations and reduce volatility. However, monetary policy alone will not do the trick.

“Nigeria needs broad-based macro coordination. The CBN can’t fight inflation with one hand while the government runs a loose fiscal policy with the other,” Ken Ife, a distinguished economist, professor and global trade analyst said at a recent event.

Food insecurity, a national emergency

Among the most urgent issues raised by the IMF is Nigeria’s deepening food insecurity. With rising conflict and killings especially around the country’s food producing states (Benue and Plateau), climate shocks, and rising prices compounding the crisis, nearly one in 10 Nigerians is classified as food insecure.

According to the Food and Agriculture Organisation (FAO), some 33.1 million Nigerians are expected to face high levels of food insecurity in the next lean season (June-August 2025), an alarming 7 million people increase from the same period of last year.

To address this, the IMF praised the rollout of the World Bank-supported cash transfer program aimed at delivering relief to millions of vulnerable households. But coverage remains patchy, and critics warn that concerns around transparency, effectiveness, sustainability, present risks of bureaucracy and corruption.

Private sector in the spotlight

The IMF envisions a Nigerian economy led not by oil or state spending, but by a thriving private sector. To unlock this potential, Nigeria must deepen reforms to improve the business climate, reduce red tape, and stabilize policy signals.

“Looking ahead, macroeconomic policies need to strengthen buffers further and remain resilient, while creating enabling conditions for private sector-led growth,” Schimmelpfennig also stated in the Article 1V report.

Foreign direct investment remains subdued, partly due to policy inconsistency, security concerns, and currency volatility. But with reforms gaining traction, some investors are testing the waters.

“There’s cautious optimism. We need to see continuity, with no policy reversals, no panic somersaults,” Johnson Chukwu, the group managing director of Cowry Assets Management Limited told BusinessDay.

What next?

The IMF’s Article IV consultation comes at a defining moment for Nigeria. With economic fundamentals improving but socio-political pressures mounting, the country faces a dual challenge: consolidate macro gains while delivering visible benefits to its well over 200 million citizens.

The IMF’s message is clear: Nigeria has laid some of the foundations for recovery, but the road ahead is long and fraught. Global conditions, ranging from geopolitical instability and trade wars to commodity price swings, mean Nigeria must build resilience from within.

President Bola Tinubu’s administration has earned praise for pushing through long-delayed reforms. But as Nigeria approaches his second year in office and 2027 election season fast approaching, the stakes are even higher.

Missteps could erode fragile public trust, and staying the course could redefine the country’s economic trajectory, political economists suggest.

“While significant strides have been made in economic reform, the path forward requires careful management of macroeconomic policies and a commitment to inclusive growth,” Paul Alaje, senior economist and partner at SPM Professionals submitted.