Nigeria

The government faces wide-ranging fiscal pressures but the capacity to respond remains constrained by Nigeria’s long-standing institutional weakness and social challenges. After a slight improvement in 2024 at -2.6%, with the naira devaluation improving revenues, the fiscal balance is projected to have worsened to -4.7% in 2025 as low oil prices, combined with the OPEC quota, negatively impacted government revenue while capital expenditures increased. Overall, government expenditure has doubled between 2024 and 2025 and is expected to remain at this elevated level in 2026 and 2027, constraining fiscal-consolidation efforts due to necessary investments in infrastructure and development. While the phasing out of oil subsidies has improved the fiscal position, the reliance on oil revenues constrains improvements in the fiscal balance, with the deficit projected to remain below 3% of GDP in the medium-term.

The risk of sovereign default has declined since the pandemic period, given lower global rates, a low amount of FX-denominated debt and a limited amount of debt maturing in the short term: 6.7% of GDP in 2025, 6% in 2026 and 5.5% in 2027. After a decline in early 2024 due to the naira depreciation, international reserves have been replenished, thanks to a strong current account surplus of 6.8% of GDP and increased FDI inflows. As the current account balance should remain positive, though it is expected to gradually decline given the ongoing changes to the Nigerian economy with the oil diversification efforts continue, and FDI inflows should continue to increase, albeit at slower rates in 2026–2027. Foreign reserves have continued to climb and are expected to reach above 12 months of imports in 2026. At the same time, the domestic banking sector has remained stable, with capital adequacy continuing to improve, while NPLs remain a source of concern and are expected to increase.

Production in the key oil sector remains weak, below OPEC quotas and budget targets, due to lack of investment, governance and security challenges. Despite being the 14th world producer of oil (and the top producer in Africa), oil production has continued to fall significantly since the 2010 peak of 2.5mn barrels per day (mbd). Despite a slight increase at around 1.4mbd in 2025 from 1.2-1.3mbd in 2024, output has remained below the historical average and massive investments from global oil firms should come in annually to expand Nigeria’s production capacity.

Internal politics in Nigeria are marked by the North-South divide, and the early 2027 election could reinforce social tensions. Violence between farmers and herders in central Nigeria, driven by factors such as rapid population growth and natural resource depletion, has continued. In the Niger Delta, concerns about resource access, increasing poverty and the environmental impact of the oil sector remain ongoing. Addressing the security situation in the north and managing community relations in central Nigeria remain important priorities for the government, especially in preparation of next year’s election. Despite rumours of a military coup in late 2025, civilian leadership is expected to continue in Nigeria, but increasing poverty has made the current administration unpopular. 

However, the biggest threat to the country remains the continued presence of Islamist terrorist groups in the region. These include as Boko Haram and the Islamic State West Africa Province, which operate in the north and have recently increased both the number and scale of their attacks. Despite the recent professionalization of its army, Nigeria will continue to rely on US support, both for arms supplies and direct military assistance, as well as support from other international partners.