Nigeria’s fiscal deficit is projected to climb to 4.7% of Gross Domestic Product (GDP) in 2025, according to the International Monetary Fund’s (IMF) latest report, signaling ongoing economic challenges despite reform efforts. The anticipated increase, up from 4.1% in 2024, is driven by declining oil revenues and rising government spending, posing risks to fiscal sustainability.
The IMF’s 2025 Article IV Consultation Report notes that the deficit exceeds budget projections due to lower-than-expected oil prices and production, coupled with higher-than-planned capital expenditure. In 2024, Nigeria reduced its deficit from 4.8% of GDP in 2023 to 4.1%, aided by stronger non-oil revenue collection, exchange rate depreciation, and administrative improvements. However, volatile global oil markets and domestic revenue challenges threaten to reverse these gains.
The report highlights that Nigeria’s 2025 budget relied on optimistic oil revenue forecasts, which have been undermined by global price fluctuations and production shortfalls. This has widened the fiscal gap, with capital spending outpacing fiscal capacity. The IMF advises adopting a neutral fiscal stance, prioritizing growth-oriented investments in infrastructure and agriculture while curbing non-essential spending.
To address the deficit, the IMF emphasizes intensifying domestic revenue mobilization through tax reforms, including modernizing Value Added Tax (VAT) and Company Income Tax (CIT) systems to boost compliance and broaden the tax base. The Fund also projects that fully implementing fuel subsidy removal could save up to 2% of GDP in 2025, provided these savings are realized.
The IMF underscores the need for a flexible policy framework to navigate external shocks and domestic fiscal pressures. Accelerating tax reforms, rationalizing expenditures, and funding critical infrastructure without jeopardizing debt sustainability are crucial steps. As global economic uncertainties persist, Nigeria must balance fiscal discipline with strategic investments to ensure long-term economic stability and growth.
