Nigeria needs to adapt its 2025 budget to lower oil prices and scale up cash transfers to shield the most vulnerable parts of its population that face hunger and poverty, the International Monetary Fund said on Wednesday.
Releasing the results of its routine "Article IV" assessment of Nigeria's economic policies, the IMF said economic growth had been steady but too low in per capita terms with inflation remaining high. The Fund predicted the country's economy would expand at 3.4% this year and 3.2% in 2026.
As Africa's largest oil producer, Nigeria is under strain from relatively low international crude prices, which traded around $68 a barrel on Wednesday .
"The international economic environment that Nigeria lives in and operates in is marked by the very, very large uncertainty, and in particular, international oil price volatility impacts Nigeria directly through the fiscal and the external balances as well as inflation," said Axel Schimmelpfennig, the Fund's mission chief for Nigeria.
The complex outlook made it especially important for policymakers to build and maintain buffers while being ready to respond to shocks or seize opportunities.
"Turning to our policy messages, the key challenge now is to tackle high poverty and food insecurity," he said further.
Nigeria's government has supported the poorest part of its population through direct cash transfers since 2007, but has struggled to scale them up because of a lack of data on their impact and as large numbers of the population have no bank account.
The 2025 budget is squeezed by Nigeria's assumption of oil production of 2 million barrels per day and an oil price of $75 a barrel.
International Brent crude futures spiked higher last month in response to tension in the Middle East, but are under pressure from a shift in policy by the OPEC+ group, of which Nigeria is a member, to regain market share rather than curtail supply.
"Achieving the government's 2025 budget targets will require additional measures, largely reflecting the drop in oil prices compared to when, when the budget was approved," Schimmelpfennig said in a briefing to journalists.
"Keeping the fiscal deficit a percent of GDP unchanged, compared to 2024 will be important to support the fight against inflation," he added.
Recouping fuel subsidy savings and making administrative gains could mobilise some domestic revenues, but the central bank needed to maintain a tight stance and a positive real rate to bring down inflation and support stability, the Fund said.
It said savings from fuel subsidies would amount to 2% of 2024 GDP.
Asked about the naira currency and Nigeria's FX markets, Schimmelpfennig said reforms by the government and central bank had been far reaching and fundamental with the result supply and demand was more in balance.
"When we talk to investors, they're happy. They can invest in Nigeria, and when they want, they can bring their proceeds out," he said. "You look at the parallel market and the official rate, they're aligned."
Reuters
