Nigeria is facing worsening economic crisis – IMF

The International Monetary Fund (IMF) has highlighted that Nigeria is grappling with a cost-of-living crisis intensified by stagnant per-capita growth, widespread poverty, and significant food insecurity. These challenges come in the context of escalating inflation, an exchange rate dilemma, subdued economic expansion, and increasing instances of business closures.

In its recent publication, ‘IMF Executive Board Concludes Post Financing Assessment with Nigeria,’ the IMF outlines these concerns, pinpointing inadequate revenue collection as a critical factor undermining the delivery of essential services and public investments.

The report further details that as of October, annual headline inflation hit 27%, with food inflation soaring to 32%, driven by the removal of fuel subsidies, depreciation of the exchange rate, and inadequate agricultural output.

Nigeria is contending with a challenging external environment and a spectrum of domestic issues, including scarce external financing and a spike in global food prices due to conflict and geopolitical fragmentation. The report underscores the stagnation of per-capita growth alongside heightened poverty and food insecurity, which are intensifying the living cost crisis. The country’s limited fiscal space and foreign reserves further restrict the government’s ability to respond to these challenges. The IMF advocates for a focus on reinstating macroeconomic stability and fostering conditions for sustainable, inclusive growth.

On January 12, 2024, the IMF’s Executive Board concluded the Post Financing Assessment for Nigeria, affirming the country’s sufficient capacity to repay the IMF and endorsing the Staff Appraisal. The report also commends the new administration’s efforts to address structural challenges, including the removal of fuel subsidies and the harmonization of exchange rates.

The Central Bank of Nigeria (CBN)’s new team is prioritizing price stability and has stepped away from its previous development finance role. Concurrently, the government is devising a comprehensive strategy for domestic revenue enhancement.

Nigeria’s debt to the IMF stands at $2.8 billion, according to the Debt Management Office. The 2024 federal budget allocates approximately N8.2 trillion for debt servicing. However, PricewaterhouseCoopers (PwC) has issued a warning in a recent report about the potential impacts of Nigeria’s escalating debt service costs on its debt repayment capacity, credit rating, and borrowing costs, projecting an increase in debt service from N8.25 trillion in 2024 to N9.3 trillion in 2025, and further to N11.1 trillion by 2026. This situation is prompting the government to consider raising domestic debt in 2024 to fund its deficit.