IMF Warns of Nigeria’s Widening Fiscal Deficit Amid Falling Oil Prices in 2025

Nigeria’s economic reforms have revitalized investor sentiment, signaling a brighter outlook for Africa’s largest crude producer. However, declining oil prices are set to widen the nation’s fiscal deficit in 2025, according to the International Monetary Fund (IMF).

The IMF projects Nigeria’s fiscal deficit to climb to 4.7% of GDP in 2025, up from 4.1% in 2024. This increase stems from lower-than-expected oil revenues, a critical challenge for the oil-dependent economy.

In February, Nigerian lawmakers approved a 55 trillion naira ($35.9 billion) budget, banking on an optimistic oil price of $75 per barrel and production of 2.06 million barrels per day. Since then, oil prices have dipped below $70, with actual production averaging only 1.5 million barrels daily.

The IMF highlighted that the 2025 budget’s revenue projections were overly exaggerated. “The 2025 budget was based on optimistic hydrocarbon revenue projections, even before the price decline since April,” the IMF said.

To counter this, the IMF recommends adopting a “neutral fiscal stance” to safeguard Nigeria’s economy. This involves cutting spending and prioritizing investments that drive growth and job creation.

High inflation, fueled by currency and fuel-subsidy reforms, has hit Nigeria’s poor the hardest. The IMF urges the government to accelerate cash transfers to alleviate poverty, which affects nearly half the population.

Axel Schimmelpfennig, the IMF’s mission chief for Nigeria, noted that the finance minister is working to trim spending and boost revenue. If successful, these measures could stabilize the fiscal deficit at last year’s level.

Despite the challenges, the IMF forecasts Nigeria’s GDP growth to hold steady at 3.4% in 2025, matching 2024’s rate. Medium-term growth is projected at around 3.5% annually, but this pace is insufficient to significantly reduce poverty.

Nigeria’s economic reforms, supported by the IMF, have laid a foundation for recovery, yet vulnerabilities remain.

Falling oil prices underscore the need for diversified revenue streams to ensure long-term fiscal stability.

The government’s ability to balance spending cuts with targeted investments will be critical in 2025. Swift action on revenue enhancement and social support could mitigate the risks of a widening fiscal gap.

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