Nigeria, Africa’s most populous nation and one of its largest economies, now finds itself at a critical juncture. Despite its vast natural resources and sizeable domestic market, the country continues to grapple with deep-seated structural challenges.
These include persistently high inflation, a rapidly depreciating currency, low per capita incomes, currently estimated at around US$835 according to recent IMF figures, and widespread poverty and inequality.
In response, the International Monetary Fund (IMF) emphasises the need for a comprehensive reform agenda that not only stabilises the macro economy but also lays the groundwork for long-term sustainable growth.
Nigeria’s economic struggles stem from a combination of structural rigidities and external shocks. Over the past few years, misaligned policies have contributed to an environment marked by fiscal imbalances and low productivity.
The economy’s heavy reliance on oil revenues exposes it to the volatility of global commodity markets. In addition, the slow pace of economic diversification leaves sectors such as manufacturing and high-value services underdeveloped.
For instance, while oil production in the third quarter of 2024 averaged around 1.47 million barrels per day, non-oil sectors continue to lag in their contribution to gross domestic product (GDP).
Inflation remains a persistent problem, as Nigeria experienced headline inflation reaching nearly 34.8% in late 2024. The IMF projects that inflation will fall to approximately 25% in 2025.
This high inflation erodes household purchasing power and undermines consumer confidence. At the same time, per capita income has declined from US$877 in 2024 to about US$835 in 2025, reflecting an economy that has not kept pace with its growing population.
Fiscal challenges also abound. Government revenue remains low as a percentage of GDP when compared with regional averages. Fuel subsidies, which once helped keep petrol prices low for consumers, cost Nigeria over US$10 billion annually.
Their removal is intended to free up funds for more productive investments in infrastructure, education and health. However, this measure has contributed to a steep rise in fuel prices, thereby triggering a severe cost-of-living crisis that affects millions of Nigerians.
The Central Bank of Nigeria (CBN) has responded by tightening monetary policy at the apex bank raised its policy rate to around 27.5% by the end of 2024 in an effort to curb inflation and stabilise the naira.
Although these moves are necessary to anchor inflation expectations and rebuild foreign exchange reserves, they have further dampened consumer sentiment in the short term.
In a bid to restore macroeconomic stability, the Tinubu administration has embarked on an ambitious reform programme. One of the cornerstones of this programme has been the unification of the official and parallel exchange rates.
This move was designed to eliminate long-standing distortions in the Nigerian economy. By allowing the Naira to float more freely and adopt a market-determined rate, the government has taken a critical step towards enhancing transparency and boosting investor confidence.
Current figures suggest that the naira now trades at approximately 1,500 Nigerian naira (NGN) per US$1. This decision has, however, come with significant short-term challenges, as the naira’s steep devaluation has increased import costs and contributed to inflationary pressures.
Another major reform initiative has been the elimination of costly petrol subsidies. These subsidies, which once kept fuel prices artificially low, were a substantial drain on public finances. Their removal is intended to free up funds for investment in infrastructure and social services.
While this measure has strengthened Nigeria’s public finances and reduced the fiscal deficit – which narrowed from around 6.4% of GDP earlier in 2024 to about 4.4% in early 2024 – it has also led to a sharp rise in fuel prices and intensified the cost-of-living crisis.
Monetary policy has also been tightened significantly. The substantial rise in the CBN’s policy rate reflects the urgent need to rein in inflation and stabilise the currency. Although these moves are essential for long-term economic stability, they have, in the short term, suppressed domestic consumption and investment.
While the recent reforms have set the stage for macroeconomic stabilisation, they are only the first step in a long journey towards sustainable and inclusive growth. IMF analysis suggests that to unlock Nigeria’s full growth potential, a broader and more ambitious reform package is required. This package must address the underlying structural challenges in the economy.
Nigeria must streamline its regulatory framework to reduce excessive bureaucratic hurdles that stifle entrepreneurship and deter both domestic and foreign investment.
Simplifying business registration processes, cutting red tape, and ensuring that small and medium-sized enterprises have fair access to credit and markets are essential measures that will boost the private sector.
Recent data show that the services sector, which contributed about 53.6% to GDP in the third quarter of 2024, remains the largest component of the economy. Enhancing this sector further could drive higher growth.
Improved governance is critical for restoring public trust and ensuring the efficient allocation of resources. Anti-corruption measures must be intensified and public financial management systems overhauled.
Strengthening institutions, particularly in state-owned enterprises and key public agencies, will help build a more predictable business environment. This is particularly important given that Nigeria ranks relatively low on the Corruption Perceptions Index compared with many of its regional peers.
The labour market in Nigeria is characterised by high informality and low productivity. Fewer than 14% of working Nigerians enjoy predictable, fixed-wage employment. Structural reforms that promote formal employment, enhance workforce skills through better education and vocational training, and modernise labour regulations are essential for creating high-quality, wage-paying jobs. These measures will help reduce the high unemployment rate, especially among the youth, and improve overall productivity.
Given the short-term hardships resulting from subsidy removal and currency devaluation, it is crucial to implement measures that cushion vulnerable households.
Temporary cash transfers, targeted social protection programmes, and measures to reduce the cost of essential goods and services are critical. Effective communication strategies will also play a key role in ensuring that the benefits of reforms are widely understood and appreciated by the public.
IMF projections indicate that if Nigeria can substantially reduce its gaps in business regulation, governance and labour market flexibility relative to its peers, medium-run output could increase by nearly 9%. Such transformation would not only raise GDP growth – the IMF projects growth of 3.2% in 2025 – but also significantly reduce income inequality.
Enhanced regulatory frameworks and improved governance are expected to attract increased foreign direct investment. For instance, despite Nigeria being Africa’s top oil producer, its diversification remains low, which curtails the multiplier effect of growth in non-oil sectors.
Furthermore, by rebuilding foreign exchange reserves and stabilising the naira, Nigeria can create a buffer against external shocks. Current estimates suggest that Nigeria’s foreign reserves are stabilised at around US$40 billion, which provides approximately six months of import cover.
This cushion is vital as the country navigates the challenges of a global transition to green energy and adapts to the demands of a more diversified economic structure.
For Nigeria’s reform agenda to succeed, building broad-based public support is imperative. Transparent and effective communication about the long-term benefits of reforms will be essential in mitigating the short-term discomfort experienced by many households.
For example, while the removal of fuel subsidies has led to a significant increase in fuel prices, targeted cash transfer programmes have been introduced to help cushion the impact on the most vulnerable. In addition, the international community, including multilateral institutions like the IMF and the World Bank, must continue to support Nigeria by providing technical assistance and access to affordable financing. Such international backing is critical for reinforcing Nigeria’s efforts to stabilise the economy and restore investor confidence.
Nigeria’s economic transformation is at a critical crossroads. The bold reforms initiated by the Tinubu administration, such as unifying exchange rates, eliminating fuel subsidies and tightening monetary policy, are essential steps towards restoring macroeconomic stability.
However, these measures have also exposed deep-seated structural issues that must be addressed to unlock the country’s full growth potential. By focusing on enhancing the business environment, strengthening governance, reforming the labour market and building robust social safety nets, Nigeria can pave the way for sustainable and inclusive growth.
Real economic data show that Nigeria’s GDP per capita has fallen from US$877 in 2024 to US$835 in 2025, while GDP growth is projected at 3.2% for 2025 according to IMF forecasts. Inflation, which reached nearly 34.8% in late 2024, is expected to decline to around 25% next year.
These figures underscore both the challenges and the opportunities that lie ahead. With steadfast political commitment, effective policy coordination and the support of the international community, Nigeria has the potential to transform its economic landscape, reduce poverty and become a true engine of growth in sub-Saharan Africa.
The stakes are high. A successful turnaround in Nigeria could serve as a model for other emerging economies in the region and beyond. Policymakers, private sector stakeholders and international partners must work together to build a more resilient, prosperous and inclusive Nigeria for future generations.
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