The IMF’s upgraded forecasts and plunging inflation counsel the reform gamble is paying off. However euphoria can be untimely.
When the Worldwide Financial Fund upgrades a rustic’s progress forecast not as soon as however twice in three months, markets have a tendency to take a seat up and take discover. When that nation is Nigeria—a perennial underperformer saddled with continual inflation, oil dependency, and a status for false begins—the eye turns into much more acute. The Fund’s October World Financial Outlook tasks Nigeria’s economic system will broaden by 3.9 p.c in 2025 and 4.2 p.c in 2026, upward revisions of 0.5 and 0.9 share factors, respectively, from its July estimates. Coupled with September’s dramatic inflation collapse to 18.02 p.c—the primary sub-20 p.c studying in three years—Africa’s largest economic system seems to have turned a nook. But this can be a story much less of triumph than of tentative vindication. The numbers verify what many have privately hoped however few dared to state publicly: the painful reforms undertaken since President Bola Tinubu took workplace in Could 2023—elimination of the pricey petrol subsidy, unification of the a number of trade charges, and a hawkish financial coverage stance—are lastly bearing fruit. However the gentle on the finish of the tunnel stays distant, and the tunnel itself remains to be crowded with obstacles.
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The reform premium
The IMF’s upgraded forecast rests on what economists name “supportive home components”. Translation: Nigeria has begun to do issues proper. The naira, which was buying and selling at over 1,900 to the greenback within the parallel market earlier this yr, has appreciated considerably because the Central Financial institution of Nigeria (CBN) cleared its overseas trade backlog and restored transparency to the foreign exchange market. Exterior reserves have risen to $42.63 billion as of mid-October, supported by improved oil manufacturing, diaspora remittances, and portfolio inflows. Investor confidence, that the majority fragile of financial sentiments, has strengthened. Maybe extra critically, Nigeria’s restricted publicity to the brand new wave of worldwide tariff wars—notably the protectionist measures emanating from Washington—has insulated it from the financial headwinds buffeting extra trade-dependent economies. Whereas superior economies are projected to develop at an anaemic 1.5 p.c and rising markets face a slowdown, Nigeria has managed to buck the development. The IMF’s Denz Igan famous that “lowered uncertainty and Nigeria’s restricted publicity to US tariffs” have been key drivers of the upgraded outlook. The Fund additionally revised its 2024 progress estimate upward to 4.1 p.c, reflecting the authorities’ GDP rebasing train, which now captures beforehand underreported sectors such because the digital economic system, casual agriculture, and modular refining. This isn’t statistical sleight of hand; it represents a extra trustworthy accounting of what Nigeria’s economic system really produces. The oil sector, as soon as the engine of progress, now accounts for simply 4 p.c of GDP, down from 8 p.c in 2021. The economic system is diversifying, slowly however certainly.
“The Nationwide Bureau of Statistics’ rebasing of the Shopper Worth Index, which shifted the bottom yr from 2009 to 2019, accounts for a part of the technical decline.”
Inflation’s dramatic give up
If the IMF improve was a vote of confidence, September’s inflation information was a standing ovation. Headline inflation fell to 18.02 p.c, down from 20.12 p.c in August—a 2.1 share level drop in a single month. This marks the sixth consecutive month of decline and represents a shocking 14.68 share level discount from the 32.7 p.c recorded in September 2024. Meals inflation, the scourge of Nigerian households, plummeted to 16.87 p.c from 21.87 p.c in August, pushed by sharp declines within the costs of maize, garri, beans, millet, potatoes, and different staples. Extra outstanding nonetheless: Nigeria recorded its first month-on-month meals deflation in over 13 years, with meals costs declining by 1.57 p.c in September. This isn’t merely a statistical quirk. It displays the onset of the harvest season, improved farm-to-market logistics, and, crucially, the easing of insecurity in key agricultural zones. For a rustic the place households spend as much as 70 p.c of their earnings on meals, that is nothing in need of a lifeline. However context is every part. The Nationwide Bureau of Statistics’ rebasing of the Shopper Worth Index—which shifted the bottom yr from 2009 to 2019—accounts for a part of the technical decline. The IMF, ever the realist, tasks common shopper costs will decline from 31.4 per cent in 2024 to 23 p.c in 2025 and 22 p.c in 2026. Finish-of-period inflation is forecast at 21 p.c in 2025 and 18 p.c in 2026. Translation: whereas the trajectory is constructive, absolutely the stage of costs stays punishingly excessive.
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The per capita drawback
Right here is the place the keenness should be tempered. A 3.9 p.c GDP progress fee could sound spectacular on paper, however set in opposition to Nigeria’s inhabitants progress fee of roughly 2.4 p.c each year, the true acquire in per capita earnings is a paltry 1.5 p.c. For a rustic with a inhabitants of 237.58 million—and rising—this isn’t the stuff of prosperity. It’s the arithmetic of marginal enchancment. Furthermore, the economic system continues to face the structural problem of absorbing an estimated 3.5 million new entrants into the labour power yearly. Robust GDP progress alone won’t resolve this drawback with out focused reforms to enhance the convenience of doing enterprise, handle the continual energy deficit, and broaden entry to credit score for small and medium-sized enterprises. As Bismarck Rewane, CEO of Monetary Derivatives Firm, aptly put it, “You can’t develop the economic system with what we’ve seen right this moment and not using a broad energy resolution.”
Fragile positive aspects, persistent dangers
The September inflation information provides tangible reduction, however the positive aspects stay fragile. Meals inflation is inherently risky, and the structural points which have plagued Nigeria’s agricultural sector—insecurity in food-producing areas, insufficient energy provide, poor infrastructure—haven’t been resolved. The current hike in gasoline costs following the elimination of subsidies has already begun to ripple via the economic system, elevating transport and power prices. The IMF’s projection of 23 p.c common inflation for 2025 is a reminder that the battle is way from over. Nigeria’s present account surplus, which stood at 6.8 p.c of GDP in 2024, is predicted to slim to five.7 p.c in 2025 and three.6 p.c in 2026 as increased imports offset oil export positive aspects. The CBN, having minimize the benchmark rate of interest to 27 p.c in September for the primary time in 5 years, might want to tread rigorously. A untimely easing of financial coverage might reignite inflationary pressures, undoing the hard-won positive aspects of the previous yr.
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The decision
Nigeria’s financial story in 2025 is one among cautious optimism. The IMF’s upgraded progress forecast and the dramatic decline in inflation are welcome developments, signalling that the reform agenda is starting to work. However this can be a marathon, not a dash. To show these medium-term projections into sustained, inclusive progress, Nigeria should deepen its structural reforms: fixing the ability sector, securing agricultural zones, bettering infrastructure, and mobilising home income via efficient tax measures. For now, the sunshine on the finish of the tunnel is getting brighter. However Nigeria stays very a lot contained in the tunnel. Prudence, not celebration, needs to be the order of the day. The bitter medication is working, however the affected person will not be but cured.
Dr. Oluyemi Adeosun, Chief Economist, BusinessDay Media
