• IMF identifies three strategic priorities to help Nigeria realize its potential as a significant economic power

• Recommendations focus on achieving robust growth, implementing an efficient fiscal framework, and bolstering domestic revenues

Africa's most populous economy faces a challenging context, where intended reform to improve the economic environment has brought short-term challenges for the weakest economic players. This reality can put the International Monetary Fund's (IMF) suggestions to the test.

On July 7, 2025, the IMF published a blog post outlining three strategic priorities aimed at helping Nigeria unlock its potential as a global and continental economic powerhouse. Axel Schimmelpfennig, IMF Mission Chief for Nigeria, and Christian Ebeke, Resident Representative in the country, drew upon the country's latest annual economic health check. The analysis acknowledges the progress made since 2023 and the persistent challenges in an uncertain global environment.

IMF Recommendations in light of Economic Realities

First and foremost, the IMF advocates for stronger and more sustained growth to lift millions of Nigerians out of poverty and food insecurity. It underscores the need to expand the existing monetary transfer system to make such growth inclusive. This recommendation comes as 42% of the population lives under the poverty line, and real GDP per capita decreased an average of 0.7% per year from 2014 to 2023.

With revenue representing less than 10% of GDP, Nigeria's tax revenue ratio is one of the world's lowest. Mounting inflation, currently above 20%, complicates matters as the expansion of monetary transfers could add price pressures if unaccompanied by production increase, especially in the agricultural sector, where poor infrastructure hampers productivity.

The IMF's second priority is the establishment of an effective fiscal framework deemed critical for economic development. It advises realistic budgetary assumptions, rigorous spending management, and transparent implementation to enhance public accountability.

This approach must take account of Nigeria's substantial infrastructure investment needs, especially in the energy sector, where chronic deficits stifle industrial production capacity. The Nigerian government faces the major challenge of balancing fiscal discipline with developmental investment.

The third recommendation involves continuing to increase domestic revenues, which the IMF deems critical given the significant financing needs in sectors conducive to growth such as agriculture, infrastructure, and climate adaptation. The institution proposes tax reforms to simplify tax payment and ensure all those liable fulfil their obligations.

The IMF suggests that, in the long run, once the cost-of-living crisis eases and the monetary transfer system is fully operational, there will be room to align tax rates with those of neighbouring countries. This proposal should consider that the informal sector accounts for over 60% of Nigeria's economy and that the middle class, already pressured by inflation, could resist increased tax burdens.

Recent Reform Context and Implications

The IMF commends the bold reforms initiated by the new government since 2023, notably in foreign exchange market liberalization, cessation of fiscal deficit funding by the central bank, and reform of the fuel subsidy system. These measures have increased international reserves and restored access to foreign currencies in the official market.

Nigeria managed to re-enter the international capital markets last December and has benefited from rating upgrades by rating agencies. A new domestic private refinery built by billionaire Aliko Dangote exemplifies the country's potential higher positioning in the oil value chain.

However, these reforms come with significant challenges. The foreign exchange market liberalization led to a de facto naira devaluation, which, while improving the competitiveness of non-oil exports, also makes imports more expensive in a country dependent on overseas goods for consumerism and industrial inputs. This situation contributes to the current inflationary pressures, which can erode households' purchasing power and reduce domestic demand.

Geopolitical constraints add another dimension to Nigeria's economic challenges. Dependence on oil revenues, which still account for 30% of government income per IMF data, exposes the country to global price volatility and OPEC's decisions.

Implementation Challenges and Future Prospects

Carrying out the IMF's recommendations requires navigating Nigeria's intricate social and political dynamics. The institution's advocacy for budgetary transparency and anti-corruption efforts bumps against deeply entrenched power structures where political and economic elites often generate revenues from oil rent control and public markets.

The future depends largely on the Nigerian government's ability to sequence and coordinate the IMF-recommended reforms. A gradual approach prioritizing first energy and transport infrastructure investments could create the conditions for credible economic diversification.

This strategy would require innovative financing, combining public-private partnerships, international concessional financing, and strategic use of oil revenues in a sovereign fund dedicated to development. The success will also hinge on maintaining a balance between macroeconomic stability requirements and long-term development imperatives while preserving social cohesion in a complex economic transition period.

Idriss Linge