IMF urges Nigeria to build stronger public finances as debt risks rise
The International Monetary Fund (IMF) has issued a renewed call for governments worldwide, including Nigeria, to strengthen public finances and ensure that public debt remains sustainable amid rising spending pressures.
In its latest World Economic Outlook update, the IMF said countries must rebuild fiscal capacity and avoid slipping into fiscal vulnerabilities as the global economy faces multiple shocks, including higher borrowing costs, geopolitical tensions, and lingering inflation risks.
For Nigeria, the IMF’s warning comes at a time when the federal government is under pressure to balance spending needs with revenue realities, especially as it pushes for critical infrastructure development and social welfare programs.
IMF pushes for stronger public finances – why it matters for Nigeria
The IMF report stressed that fiscal consolidation should be pursued in the medium term, while governments maintain prudent debt management strategies.
This, it said, is necessary to protect economies from sudden shocks and ensure long-term stability.
For Nigeria, the IMF projected a 4.4 per cent economic growth in 2026, up from 4.2 per cent in 2025, before easing slightly to 4.1 per cent in 2027.
This growth outlook places Nigeria above the global average of 3.3 per cent and close to the Sub-Saharan average of 4.6 per cent.
However, the IMF cautioned that this positive outlook should not lead to complacency, especially as public spending demands increase and revenue remains limited.
“Efforts to replenish fiscal buffers should be anchored in realistic assumptions, including those regarding long-term spending pressures,” the IMF said.
The IMF’s emphasis on stronger public finances is significant because Nigeria’s debt profile has expanded rapidly in recent years. With rising debt servicing costs, any new fiscal shock could quickly strain the budget.
Revenue base must widen, not just spending cuts
The IMF urged countries to broaden revenue bases and improve spending efficiency, rather than relying solely on cost-cutting.
It said a balanced approach is necessary, especially where spending cuts could undermine essential public services.
In Nigeria’s case, the IMF recommended that reforms should target revenue growth, especially by improving tax compliance and reducing revenue leakages.
The IMF also advised the government to rationalise expenditures to make them more efficient.
For instance, the IMF called for careful targeting of discretionary fiscal support, saying interventions must be directed at firms and households most affected by adverse shocks.
It added that such support should include clear sunset provisions to avoid long-term fiscal commitments.
This advice is particularly relevant for Nigeria, where subsidies and broad-based interventions have often created long-term fiscal burdens.
Debt management and fiscal discipline remain central
The IMF’s call for stronger public finances also emphasises the need for robust debt management.
It warned that governments should avoid accumulating debt at unsustainable rates, especially where borrowing is used to fund recurrent spending rather than investment.
Analysts say that Nigeria must prioritise borrowing for capital projects that yield economic returns, such as infrastructure, energy, and agriculture, rather than financing consumption.
“Debt should be used strategically to build productive capacity,” said a senior economist in Abuja.
“If borrowing is misdirected, it increases the risk of debt distress.”
Monetary policy: stability first, gradual rate changes where possible
On monetary policy, the IMF advised central banks to maintain price stability while navigating global economic shifts.
It said countries with inflation near target could consider gradual rate cuts, but those with high inflation should remain cautious.
The IMF also underscored the importance of central bank independence for macroeconomic stability and growth, noting that credible monetary policy supports investor confidence and reduces uncertainty.
Structural reforms to boost productivity
The IMF also highlighted structural reforms as key drivers of medium-term growth.
These include reforms in labour markets, education, competition, and regulation.
Digital transformation and energy efficiency were also identified as areas that can enhance productivity and growth potential.
For Nigeria, structural reforms remain critical to improve competitiveness, attract investment, and support sustainable growth.
The IMF’s call for stronger public finances is a clear warning to Nigeria and other developing economies to avoid complacency amid growth forecasts.
With rising spending pressures and debt risks, Nigeria’s fiscal strategy will need to prioritise revenue reforms, targeted spending, and disciplined borrowing.
The IMF’s outlook shows that Nigeria has the potential to grow above global averages, but achieving this requires prudent fiscal management, strategic investment, and structural reforms.
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