Nigeria’s Road to Prosperity: Reforms, Revenues and Resilience

Over the past two years, Nigeria has begun to shake off the economic stagnation that plagued it for nearly a decade. Faced with high poverty rates, inflation and dwindling access to foreign currency, the country’s leaders have taken bold steps to address long-standing challenges. With the right combination of policies, experts believe Nigeria could emerge as a true economic powerhouse in both Africa and the wider global economy.

According to the International Monetary Fund’s latest Article IV Consultation Staff Report, Nigeria’s recent reforms are starting to bear fruit. Yet, the road to prosperity remains long, and the country’s economic journey is far from over.

A heavy burden at the starting line

When the new administration took office in 2023, it inherited an economy in distress. Between 2014 and 2023, real per capita GDP shrank by an average of 0.7 percent annually. Poverty afflicted 42 percent of the population, and a shortage of foreign exchange forced many Nigerians into the parallel market, where the naira traded at far less favourable rates than the official window.

At the same time, public finances were strained by an opaque and costly fuel subsidy regime. This system not only weighed heavily on the national budget but also contributed to frequent fuel shortages. Inflationary pressures were exacerbated by central bank financing of government deficits, undermining price stability and investor confidence.

Turning the tide with bold reforms

In response, the government and the Central Bank of Nigeria introduced a wave of reforms in 2023. These included liberalising the foreign exchange market, halting monetary financing of the fiscal deficit, and removing fuel subsidies. Additionally, revenue collection efforts were strengthened, addressing one of the world’s weakest tax mobilisation systems.

These changes have already begun to yield some results. International reserves have grown, and access to the official foreign exchange market has improved. Nigeria made a successful return to international capital markets in December 2024 and received credit rating upgrades as a result. The launch of a new privately-owned refinery has also positioned the country to extract greater value from its oil resources in a deregulated market.

Persistent challenges demand sustained action

Despite these gains, significant hurdles remain. Inflation remains stubbornly high at over 20 percent, and Nigeria’s infrastructure, particularly in the electricity sector, continues to impede productivity and private investment. Millions still face food insecurity, and the country lacks an effective social safety net to protect the most vulnerable from economic shocks.

Nigeria’s heavy reliance on oil revenues, which accounted for 30 percent of government income in 2024, makes it particularly vulnerable to global market volatility. Rising international borrowing costs and geopolitical uncertainty add further pressure to an already delicate situation.

Three priorities for a stronger future

To sustain momentum and unlock its economic potential, Nigeria must focus on three key areas, the IMF report advises.

1. Promote inclusive growth and expand social protection

Growth is essential, but it must be inclusive. Scaling up the existing cash transfer system will be critical to support vulnerable households and ensure that reforms do not leave large segments of the population behind. Social protection measures must be robust, targeted and timely.

2. Strengthen the national budget framework

Delivering quality public investment in health, education and infrastructure requires a credible and efficient budgeting system. This includes adopting realistic budget assumptions, improving expenditure control and enhancing transparency in implementation. A credible fiscal framework would also help improve public trust and institutional accountability. On the monetary side, decisive policy action is still needed to bring down inflation and reduce economic uncertainty.

3. Increase domestic revenues for long-term resilience

Nigeria must expand its tax base and improve compliance. The government’s ongoing tax reforms aim to simplify tax payments and ensure that all those who owe taxes contribute their fair share. While raising tax rates might not be appropriate in the short term given the high cost of living, aligning them with those of neighbouring countries should be a longer-term objective. Crucially, the financial savings from the removal of fuel subsidies must be redirected towards priority spending, especially in agriculture, infrastructure and climate adaptation.

At present, a large portion of government revenue is absorbed by interest payments, leaving little room for developmental investments. Without a strong revenue base, the country cannot deliver on its ambitious reform agenda.

A path paved with possibility

Nigeria’s economic potential is immense, but realising it requires determination, coordination and compassion. Reforms must continue, and the country must build a reliable safety net that protects its most vulnerable citizens. As IMF mission chief Axel Schimmelpfennig and resident representative Christian Ebeke note, the country has made commendable progress, but the task ahead demands unwavering commitment.

If Nigeria can maintain the momentum and address the remaining structural weaknesses, it could indeed fulfil its promise as a rising economic giant, both on the continent and beyond.

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