Nigeria’s Economic Reforms Show Promise Amid Challenges and Priorities

Nigeria, Africa’s most populous nation and one of its largest economies, is undergoing a transformative period marked by bold economic reforms aimed at reversing nearly a decade of stagnation. Since 2023, the federal government and the Central Bank of Nigeria have implemented sweeping policy changes to address deep-seated structural issues—from currency distortions and inflation to inefficient subsidies and weak revenue generation.

While these reforms are beginning to bear fruit—such as improved access to foreign exchange and renewed investor confidence—high poverty levels, persistent inflation, and infrastructure deficits continue to constrain inclusive growth. As outlined in the latest economic assessment of Nigeria, unlocking its full potential will require maintaining reform momentum, building resilient institutions, and safeguarding the welfare of its most vulnerable citizens.

A Challenging Starting Point: Years of Economic Decline

When the new administration assumed office in 2023, Nigeria’s economic outlook was grim. Between 2014 and 2023, real per capita GDP fell by an average of 0.7% annually, reflecting stagnation in household incomes and deepening poverty. By 2023, 42% of the population lived in poverty, a stark reminder of the urgent need for structural reforms.

The situation was compounded by multiple macroeconomic imbalances:

• Limited access to foreign exchange forced businesses and consumers into a costly parallel market.

• An opaque and costly fuel subsidy regime strained public finances and caused recurrent fuel shortages.

• The Central Bank’s direct financing of the fiscal deficit contributed to double-digit inflation.

These economic pressures undermined investor confidence and hampered Nigeria’s development trajectory.

Reforms Underway: Turning the Tide

To stabilize the economy, Nigerian policymakers launched a series of reform measures in 2023, including:

1. Liberalization of the foreign exchange market – enabling more transparent and market-driven access to foreign currency.

2. Elimination of central bank deficit financing – restoring credibility to monetary policy.

3. Fuel subsidy reform – dismantling the subsidy framework to reduce fiscal leakages and reallocate resources.

4. Revenue mobilization efforts – aimed at strengthening one of the world’s weakest tax-to-GDP ratios.

The impact of these reforms is becoming evident:

• Foreign exchange reserves have grown, improving external stability.

• The official FX market has become more accessible to businesses and individuals.

• Nigeria successfully re-entered international capital markets in December 2024, signaling renewed investor trust.

• Ratings agencies have upgraded Nigeria’s credit outlook, buoyed by fiscal and monetary reforms.

• A new private domestic refinery has come online, enhancing Nigeria’s value-added processing capacity in oil and gas.

Remaining Challenges: Inflation, Infrastructure, and Social Protection

Despite encouraging signs, Nigeria still faces critical hurdles:

• Inflation remains above 20%, eroding purchasing power and economic certainty.

• Electricity and transport infrastructure remain grossly inadequate, limiting industrial and agricultural productivity.

• Food insecurity and poverty levels have not substantially improved.

• An underdeveloped social safety net leaves vulnerable populations exposed to economic shocks and policy transitions.

• Dependence on oil revenues continues to make Nigeria vulnerable to global commodity price volatility—oil accounted for 30% of government revenues in 2024.

To address these concerns, a more inclusive and resilient policy approach is urgently needed.

Policy Roadmap: Building a Stronger, Fairer Economy

To translate reforms into sustained prosperity, Nigeria must prioritize the following three areas:

1. Accelerate Inclusive Economic Growth

While GDP may recover, lifting millions out of poverty demands broad-based, inclusive growth. The government must scale up targeted cash transfers, particularly during this cost-of-living crisis. Expanding employment opportunities in agriculture, technology, and light manufacturing is also essential for youth and rural populations.

2. Strengthen Fiscal and Budgetary Governance

Nigeria needs a robust budget framework to guide efficient public spending:

• Realistic revenue projections

• Transparent execution of capital projects

• Improved reporting and accountability mechanisms

Monetary policy must also remain focused on fighting inflation, with the Central Bank maintaining its independence and credibility.

3. Boost Domestic Revenue Generation

Nigeria’s non-oil tax base remains among the weakest globally. To meet vast funding needs in sectors like climate adaptation, power, and education, reforms must continue to:

• Simplify the tax system

• Broaden the tax base

• Modernize tax administration

Once inflation stabilizes and economic conditions improve, there will be scope to adjust tax rates to regional benchmarks. In the short term, it's critical that savings from subsidy removal are transparently redirected toward investments in health, education, and infrastructure.

Social Safety Nets: A Critical Pillar for Reform

Reforms must not leave the most vulnerable behind. Nigeria needs an institutionalized and scalable social protection system that includes:

• Digitally delivered cash transfers

• Conditional support for health and education

• Food assistance in high-risk zones

Strengthening these systems will also build trust in government reforms and improve social cohesion and resilience.

Staying the Course to Fulfill Nigeria’s Promise

Nigeria’s economic potential is vast—it is home to over 220 million people, a growing tech sector, abundant natural resources, and a strategic regional role. But potential alone is not enough. Reform fatigue must be avoided, and political will must endure beyond short-term cycles.

The current trajectory is promising. If Nigeria can maintain macroeconomic stability, expand social protections, and drive inclusive growth through bold, accountable governance, it can truly realize its ambition of becoming an African and global economic powerhouse.