World Bank to Nigeria: Save Oil Windfall for Rainy Day, Rebuild Fiscal Buffers

• Urges FG to restore PMS competition, reopen imports, reduce price 

•Raises alarm over child development crisis, says 110 out of 1,000 Nigerian children die before age five 

•Says despite increased revenues, second-round effects of Middle East conflict to raise inflation

•Edun: FG tinkering with different intervention options on Middle East  

•Says Executive Order already implemented with direct remittance to Federation Account

Ndubuisi Francis in Abuja

The World Bank has prescribed some policy responses for Nigeria in the wake of the ongoing conflict in the Middle East, including fiscal discipline, rebuilding fiscal buffers, and saving from the oil windfall for the rainy day.

The outbreak of the conflict, which pitted Iran against the United States of America and Israel, had seen oil prices shooting above $100 per barrel, higher than Nigeria’s budgeted benchmark price of $64.85.

Presenting the April 2026 edition of Nigeria Development Update (NDU), titled, “Nigeria’s Tomorrow Must Start Today: The Case for Early Childhood Development,” in Abuja, Tuesday, World Bank Lead Economist for Nigeria, Fiseha Haile, stated that the country’s gross revenues had increased due to economic reforms.

Haile added that more revenues were expected from higher oil prices linked to the Middle East conflict.

He said the NDU report recommended a cocktail of policy responses for Nigeria to manage the oil windfall and reduce inflationary pressures stemming from the Middle East conflict.

Such policy responses bordered on fiscal discipline, monetary and foreign exchange (FX) policy, and what the report described as market functioning.

On fiscal discipline, Haile said World Bank admonished Nigeria to save for the rainy day, rebuild fiscal buffers, and adopt targeted social protection, not blanket subsidies.

Regarding monetary and FX interventions, the bank urged Central Bank of Nigeria (CBN) to keep appropriate monetary policy, anchor inflation expectations, absorb shocks, limit interventions, and ensure FX flexibility, while providing clear, consistent signals to anchor expectations.

The report also called on the Nigerian authorities to restore competition in the supply of premium motor spirit (PMS) or petrol by reopening imports, and reduce pump prices.

World Bank equally called for the easing of supply constraints, and a reduction in tariffs, as well as lifting of import bans on certain items (including on intermediate inputs).

The April NDU, the first for 2026 of the usually comprehensive, twice yearly, thematic reports of the World Bank on the country, acknowledged that Nigeria had made meaningful progress in restoring macroeconomic stability.

But Haile stated, “Inflation is still elevated and under increasing ⁠pressure, and that poses risks to incomes and poverty reduction.”

He equally pointed to the fact that Nigeria’s external buffers had improved, as foreign exchange reserves rose and volatility eased.

However, tighter global financing conditions still threatened inflows, borrowing costs, and remittances, the report stated.

Nigeria’s fiscal deficit widened slightly to 3.1 per cent of GDP in 2025, but remained lower than in pre-reform years, Haile said, adding that the debt to GDP ratio fell for the first time in a decade, buoyed by stronger fiscal performance and exchange rate valuation gains.

However, he stated that inclusive growth must accelerate substantially to improve livelihoods, adding that this partly depends on how effectively Nigeria invests in its people, creates jobs, and starts in early life.

The report said while recent bold reforms had strengthened macroeconomic fundamentals, enhancing Nigerians’ productive capabilities will be critical to translating these gains into better living standards and jobs.

Nigeria’s economy grew by 4.0 per cent in 2025, the same as in 2024, driven mainly by services, such as ICT, financial services, and real estate, with mild expansion in other sectors, the report said.

World Bank explained that Inflation had eased notably, falling to 15.1 per cent year on year in February 2026, down from 26.3 per cent a year earlier, supported by tight monetary policy, reduced exchange rate volatility, and improved food supply.

Despite those gains, World Bank stated that household incomes were yet to recover fully, as poverty remained high, highlighting the need to lower inflation further and complement stabilisation with investments that expand economic opportunity and jobs.

The Middle East conflict, the report observed, was expected to have mixed but manageable effects on Nigeria. It added that higher oil prices will boost revenues and exports, but higher energy, fertiliser, and shipping costs, alongside second-round effects, will add to inflation.

It also stated that global risk aversion could tighten financial conditions and pressure the exchange rate, which should remain flexible to cushion shocks.

The report further stressed that fiscal policy should leverage the windfall to rebuild buffers and provide targeted support to vulnerable households, avoiding blanket subsidies, while monetary policy should remain tight, supported by lower import barriers on input and food.

But the bank cautioned that macroeconomic stability alone was not sufficient, stating that human capital development is a key channel through which macroeconomic gains can translate into improved living standards and jobs.

That channel, it pointed out, began early, as investments during pregnancy and early childhood shaped long-term productivity and shared prosperity.

“Yet outcomes in Nigeria remain weak and unequal: about 110 out of every 1,000 children die before age five, 40 per cent are stunted, and more than half are not developmentally on track before entering school,” the bank lamented.

In his remarks at the NDU launch, World Bank Country Director for Nigeria, Mathew Verghis, said, “Nigeria has made efforts to stabilise its economy, but welfare gains are still modest. Moreover, the conflict in the Middle East adds pressures. Sustaining and deepening macroeconomic stabilisation, as well as addressing structural constraints, will be critical to translating reform dividends into faster, more inclusive growth, jobs and improved living standards.

“Investing early in nutrition, health, caregiving, safety and early learning is one of the most powerful ways Nigeria can convert today’s reform gains into higher productivity, better jobs, and lasting poverty reduction.”

Verghis said improving early childhood outcomes required a more integrated approach—bringing together nutrition, health, responsive caregiving, early learning, and children’s living environments, including access to water and sanitation, into a coherent and continuous package of support.

He said that included defining a basic package of services from pregnancy to age five, improving targeting and delivery, engaging private sector and community providers, and aligning financing and coordination with measurable outcomes.

Nevertheless, on the country’s economic trajectory, the report stated, “The outlook for Nigeria’s economy remains cautiously optimistic. Growth is projected at 4.2 per cent over 2026-2028, supported by continued macroeconomic stabilisation, ongoing structural reforms, and increased investment. Inflation, which is still high, is expected to fall gradually, albeit more slowly than previously expected due to pressures from the Middle East conflict.”

At a panel discussion, Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, disclosed that the federal government had been tinkering with appropriate intervention measures on the Middle East crisis, while positioning to maximise the gains from increasing oil prices as well as meticulously managing attendant risks.

Edun explained that Nigeria’s position as an oil-producing country placed it in a unique situation where it both gained and lost at the same time. He added that while higher oil prices offered increased government revenue, they also pushed up costs across the economy, especially in energy and food production.

According to him, higher gas prices are increasing the cost of fertiliser, which in turn raising food prices and worsening the burden on households.

Edun admitted that inflation remained a key concern, particularly as global developments continued to create uncertainty. He said higher interest rates in advanced economies could further complicate Nigeria’s economic outlook by increasing borrowing costs and raising the country’s debt servicing obligations.

“In this kind of environment, we must be prepared for different outcomes,” he said.

Edun disclosed that the Economic Management Team was actively analysing different global scenarios and advising President Bola Tinubu on appropriate responses. This included assessing how long the current geopolitical tensions might last and how they could affect Nigeria’s economy.

Nevertheless, the minister said despite the challenges, Nigeria was in a stronger position today due to series of economic reforms.

“There is an opportunity to continue in the same direction,” he said, stressing the need for discipline in economic management.

Edun also revealed that Nigeria’s oil production had improved significantly, reaching about 1.84 million barrels per day. He described this as a positive development that could support government revenue and strengthen the country’s fiscal position if sustained.

But he stated that long-term economic progress will depend largely on investment, especially from the private sector, stressing that government alone cannot drive growth or reduce poverty without strong participation from businesses.

Edun disclosed that Executive Order 9, recently signed by Tinubu, was already being implemented, with direct remittances being made into the Federation Account, as prescribed.

The order mandated all Royalty Oil, Tax Oil, Profit Oil, Profit Gas, and other government entitlements under Production Sharing and related contracts to be paid directly into the Federation Account.

It also scrapped the 30 per cent Frontier Exploration Fund under the Petroleum Industry Act (PIA), and stopped the 30 per cent management fee on profit oil and profit gas retained by the Nigerian National Petroleum Company (NNPC) Limited, the state oil company.

Deputy Governor for Economic Policy at Central Bank of Nigeria (CBN), Mohammed Sani Abdullahi, who was also a panel discussant at the NDU launch, said Nigeria could not have been better prepared than now to manage the Middle East crisis.

Abdullahi said the level of FX reserves placed the country in a more stable condition to face the challenges.

He disclosed that the Economic Management Team had developed multiple response scenarios based on how long the global crisis might last, ranging from short-term disruptions of a few weeks to more prolonged conflicts lasting several months.