The International Monetary Fund (IMF) has backed the Central Bank of Nigeria’s gradual reduction of interest rates, saying the move is appropriate after significant progress in bringing inflation down, even as monetary policy remains tight.
The Fund also urged the Federal Government to increase non-oil revenue to fund education, healthcare, and infrastructure, while pursuing reforms to attract private investment and create jobs.
The Director of the IMF’s African Department, Zeine Zeidane, advised during the presentation of the Fund’s Regional Economic Outlook for Sub-Saharan Africa on the sidelines of the ongoing IMF/World Bank Annual Meetings in Bangkok, Thailand.
Zeidane said Nigeria had made significant progress in reducing inflation after a period of sharp price increases, creating room for some monetary policy adjustment.
He described the decision to reduce interest rates as appropriate but cautioned against interpreting it as a move towards an accommodative monetary policy.
According to him, the overall policy stance remained tight, suggesting the authorities were gradually adjusting monetary conditions rather than abandoning efforts to control inflation.
The position provides an important signal for businesses and investors as they assess the likely direction of borrowing costs, credit conditions and economic activity in Nigeria.
On the growth outlook, the Deputy Director of the IMF’s African Department, Montfort Mlachila, said Nigeria’s economy was benefiting from higher oil prices, stronger foreign exchange earnings, higher external reserves, and increased liquidity.
Mlachila said the Fund had raised its growth forecast for Nigeria to 4.2 per cent in 2026 from 4 per cent previously, while projecting 4.3 per cent in 2027.
He attributed the improved outlook partly to a more favourable external environment, increased foreign exchange availability, falling inflation, and the services sector’s performance.
The IMF’s assessment suggests that stronger oil earnings and improving macroeconomic conditions are supporting economic activity. However, sustaining growth will require reforms that broaden government revenue sources and attract more investment.
Zeidane advised the Federal Government to mobilise more revenue from outside the oil sector to strengthen public finances and provide more resources for essential services.
He said higher domestic revenue would create fiscal space for investment in education, healthcare and infrastructure.
The advice comes against the background of Nigeria’s exposure to fluctuations in international oil prices and competing demands on government revenue.
Zeidane also called for continued structural reforms to improve governance, the business environment and Nigeria’s integration with international markets.
He said Nigeria has a large market, a dynamic population, young entrepreneurs, and a technology-aware workforce that could attract private investors.
However, he said these advantages needed reforms to make it easier for businesses to invest, expand, and create jobs.
The IMF’s recommendations place domestic revenue mobilisation and private-sector investment at the centre of Nigeria’s efforts to sustain economic growth.
Zeidane advised Nigeria and other African countries to protect vulnerable households from rising living costs through targeted assistance rather than broad fuel-price subsidies.
He said general energy subsidies were expensive and often benefited wealthier households more than poorer ones because higher-income earners generally consumed more fuel and energy.
In an illustrative scenario presented in the regional outlook, the IMF estimated that general fuel-price smoothing could cost about four per cent of gross domestic product (GDP). By contrast, targeted transfers providing the same benefit to the poorest 40 per cent of the population would cost no more than 0.5 per cent of GDP.
Zeidane said governments could consider alternatives such as school feeding and other targeted assistance where systems for identifying beneficiaries were weak.
He added that any temporary price relief should be transparently funded, limited in scope and time-bound.
The Fund said savings from subsidy reforms should go to people who need assistance rather than subsidising products in ways that weaken public finances.
Mlachila said Nigeria benefited from higher international oil prices, which increased foreign exchange earnings and supported the accumulation of external reserves.
He said the improved foreign exchange position had also increased liquidity in the economy, helping to support growth.
The IMF’s assessment highlights the importance of managing additional oil earnings carefully, especially as the government faces competing demands for public services, infrastructure, and debt payments.
Mlachila also identified the services sector as a major driver of Nigeria’s growth, alongside the benefits of the improved external environment.
Zeidane said Nigeria’s large market, young entrepreneurs and technology-aware population offered considerable opportunities for private investment.
However, he said the country needed to improve governance, strengthen the business environment and deepen its integration with international markets to unlock that potential.
He said reforms in these areas could accelerate economic growth and create jobs, particularly if they encouraged businesses to invest and expand.
Zeidane also advised African countries, including Nigeria, to develop stronger domestic financing sources and deepen their financial markets to improve access to affordable capital.
He said pension funds, insurance companies and other institutional investors could help broaden domestic debt markets and provide additional financing for productive activities.
The IMF raised its economic growth forecast for Sub-Saharan Africa to 4.5 per cent for both 2026 and 2027, up 0.2 percentage points from its April projection.
Mlachila said the region’s resilience reflected earlier economic reforms and governments’ and businesses’ ability to adjust to global disruptions.
The reforms included subsidy and exchange rate changes in Nigeria and Ethiopia, as well as structural reforms in South Africa.
Businesses also adapted by shifting supply sources and transport arrangements, while countries adjusted to disruptions in global energy supplies.
The Fund said these measures helped the region withstand economic pressures better than expected.
Despite the improved growth outlook, Zeidane warned that African economies remained exposed to fresh economic shocks.
He said a renewed disruption to energy supplies, a sharp rise in global financial market uncertainty or a severe El Niño weather event could increase pressure on economies.
The Fund warned that higher commodity prices affected countries differently. Oil, copper, and gold exporters benefited from stronger prices, while economies less dependent on natural resources experienced slower growth and widening external deficits.
For Nigeria, higher oil prices provide support, but the IMF’s broader warning suggests that stronger export earnings alone cannot remove the risks associated with global uncertainty.
The IMF projected that median inflation in the region would rise from 3.4 per cent in 2025 to 4.3 per cent in 2026 and five per cent in 2027.
Zeidane said fuel and transport costs had already increased, while higher fertiliser prices could raise food production costs and threaten food security.
The pressure could be particularly difficult for households already struggling with the cost of living.
Although the figures are regional projections rather than forecasts for Nigeria alone, the risks matter for the country because higher fuel, transport, and agricultural input costs can feed into food prices and other household expenses. NigerianCulture Magazine
Zeidane said earlier fiscal adjustments had helped African countries reduce their budget deficits and debt ratios, but their ability to respond to new shocks remained limited.
Interest payments absorb about 13 per cent of government revenue in a typical country in the region, leaving less money for social services and public investment.
He said borrowing costs remained high even though some countries had continued to access international capital markets.
The IMF also warned that increased government borrowing from domestic banks could reduce credit available to businesses and deepen the link between government finances and the banking sector.
For Nigeria, the broader concern is balancing debt servicing with spending on infrastructure, education, healthcare, and other productive activities.
Mlachila said countries across the region had issued about $12 billion in international bonds during the first nine months of the year.
He explained that economic reforms had helped several countries reduce the additional interest investors demanded to lend to them.
However, rising benchmark interest rates offset the benefit, including an increase of more than 100 basis points in US 10-year Treasury yields during the period discussed.
The IMF advised governments to assess borrowing decisions individually, comparing the cost of international financing with alternative sources of funds.
It also recommended stronger economic fundamentals, better fiscal management, and transparent debt reporting to improve access to affordable borrowing.
Zeidane said bilateral aid to the region was projected to fall by a further 12 per cent in 2026, after a steep drop the previous year.
He warned that reduced assistance would leave countries with less money to address economic shocks and finance development programmes.
The Fund said the reduction in aid, combined with rising borrowing costs and higher essential commodity prices, could make it more difficult for vulnerable economies to protect households and sustain investment.
Zeidane said African governments should manage immediate economic pressures without sacrificing investments needed to support future growth.
He said the region’s resilience was real, reflecting difficult reforms and businesses’ ability to adapt, but warned that current resilience should not come at the expense of future prosperity.
The IMF called for policies that protect vulnerable households, maintain economic stability and sustain productive investment.
Zeidane said governments needed to improve electricity supply, digital connectivity, workforce skills and the business environment to attract private capital and create jobs.
He added that regional trade and economic integration could expand markets for businesses and reduce exposure to imported fuel.
The IMF said general fuel-price smoothing could cost about four per cent of GDP in its illustrative scenario, compared with no more than 0.5 per cent of GDP for targeted transfers providing the same benefit to the poorest 40 per cent of the population.
Zeidane said governments should protect vulnerable households while ensuring that support programmes did not place excessive pressure on public finances.
Where reliable systems for identifying beneficiaries were unavailable, the Fund suggested alternatives such as school feeding and other targeted forms of assistance.
It said any temporary price relief should be transparently funded and subject to clear limits and an end date.
Zeidane advised countries benefiting from higher commodity prices to save most of the additional revenue and consider using some of it to repay expensive debt.
Countries experiencing capital outflows, meanwhile, were advised to continue adjusting their public finances while protecting essential services and productive investment.
The recommendation is relevant to Nigeria because higher oil prices could generate additional revenue that could help strengthen public finances and reduce borrowing pressures.
The Fund said some African countries might need to tighten monetary policy to prevent temporary price increases from becoming persistent inflation.
Zeidane also said exchange rate flexibility, where permitted by national policy frameworks, could help countries absorb external shocks and preserve foreign reserves.
The recommendation was directed at the region as a whole. The representative separately described Nigeria’s gradual interest-rate reduction as appropriate because inflation had declined, while noting that the overall monetary policy stance remained tight.
Zeidane called for greater transparency in public debt and stronger debt management to help countries improve their access to financing.
He said sound economic fundamentals, credible fiscal policies and reliable debt information would help investors assess countries’ ability to repay their obligations.
The Fund also advised countries to develop domestic debt markets by broadening the participation of pension funds, insurance companies and other institutional investors.
It said deeper local-currency markets could give governments and businesses more financing options and reduce dependence on external borrowing.
Zeidane said African countries needed more reliable electricity, better digital connectivity, stronger workforce skills and a more predictable business environment.
He said these improvements could attract private investment, increase productivity and create jobs.
The Fund also called for deeper regional trade and economic integration to expand markets and reduce countries’ exposure to imported fuel.
It said such reforms were particularly important because Africa continued to face a substantial productivity gap compared with other emerging and developing economies.
The IMF said wider adoption of artificial intelligence (AI) could increase economic growth in Sub-Saharan Africa by more than four percentage points over 10 years.
Mlachila explained that this could translate into an additional 0.4 percentage point of growth annually if countries adopted and expanded the use of the technology.
He said the opportunity was not limited to countries producing AI technology. African economies could also benefit by applying AI to improve productivity in existing industries and public services.
The IMF identified agriculture, education, healthcare and government services as areas where the technology could make a difference.
Mlachila said agriculture offered considerable opportunities for AI because productivity and crop yields in the region remained below international levels.
The technology could help improve agricultural practices and support more efficient delivery of education, healthcare and government services.
For Nigeria, wider adoption could create opportunities to improve farm productivity, strengthen public service delivery and support businesses using digital technologies.
However, these gains would depend on countries addressing gaps in infrastructure, internet access and technical skills.
Mlachila said African countries exporting critical minerals could benefit from rising demand associated with the energy transition and the infrastructure required to support AI technology.
He said Africa held about 30 per cent of the world’s stock of critical minerals and identified the Democratic Republic of Congo as one country with potential to benefit.
The remarks did not provide a specific estimate of the potential gains for Nigeria. However, the issue is relevant to Nigeria’s efforts to develop its solid minerals industry and attract investment into mineral exploration and processing.
Zeidane said the IMF’s previous regional analysis estimated that Africa’s GDP could increase by more than 20 per cent over five to 10 years if countries closed half of the gap with comparator economies in governance, the business environment and international integration.
He said the potential gains could support faster growth, more jobs and greater prosperity.
For Nigeria, the findings point to the importance of improving the conditions under which businesses operate, strengthening institutions and making it easier for local firms to compete in international markets.
Zeidane said Africa’s fast-growing young population could help position the continent as a future driver of global economic growth.
He said this potential would depend on countries mobilising more capital, improving their ability to channel domestic savings into productive investment and making their economies more attractive to private investors.
The Fund said reforms that improve productivity and encourage businesses to invest would help translate demographic growth into employment and higher living standards.
The IMF said African countries needed to look beyond foreign capital and make better use of domestic savings to finance development.
Zeidane said pension funds, insurance companies and other institutional investors could help deepen domestic financial markets and provide longer-term financing.
The recommendation is relevant to Nigeria’s capital market and institutional investment sector, where domestic savings could help finance productive businesses and infrastructure.
The IMF said African countries entered the latest economic shock with stronger economic buffers following reforms undertaken in previous years.
Mlachila said the region had recorded its fastest growth in more than a decade by the end of 2025, alongside improvements in fiscal balances, debt stabilisation, inflation and current account positions.
He said these gains had helped countries absorb some of the pressure from the global economic environment.
Zeidane said businesses had responded to disruptions in global energy supplies by changing their sourcing arrangements and logistics and drawing down inventories.
He said these adjustments had helped maintain economic activity despite disruptions to supply chains.
The remarks suggested that the ability of businesses to adapt had been an important part of the region’s resilience.
Zeidane said the IMF would continue to support countries across the region through financial assistance, policy advice and capacity development tailored to their individual circumstances.
He said the Fund’s support would help countries address immediate economic pressures while strengthening their ability to withstand future shocks.
He concluded that Africa’s resilience needed to be sustained through policies that protect vulnerable people, maintain economic stability and preserve investment in long-term growth.