Rebuilding Fiscal Buffers

The World Bank in the latest edition of its Nigeria Development Update (NDU), titled “Nigeria’s Tomorrow Must Start Today: The Case for Early Childhood Development,” released during the week, stressed that rebuilding Nigeria’s fiscal buffers is now more urgent than ever, considering rising uncertainties in the global economy.

This advice comes as global economic leaders gather in Washington DC, next week, for the 2026 International Monetary Fund/World Bank Spring Meetings, to focus on how best to navigate the tension created by the escalating Israel/US–Iran conflict and its far-reaching implications for global energy markets, inflation, and financial stability.

Interestingly, the multilateral institution yesterday pulled down the report from its website, ostensibly due to criticism that followed its recommendation that Nigeria allow the importation of Premium Motor Spirit. This did not go well with most commentators who viewed it as an attempt to sabotage efforts of the Dangote Refinery, which has been steadily strengthening Nigeria’s refining capacity and advancing the country’s drive toward energy self-sufficiency.

Meanwhile, the bank pointed out that the escalation of the war in the Middle East has heightened uncertainties across global markets, intensified volatility in oil prices, and raised fresh concerns about the fragility of economic recovery in both advanced and emerging economies, including Nigeria.

The outbreak of the conflict, which pitted Iran against the United States of America and Israel, had seen oil prices climb above $110 per barrel, higher than Nigeria’s budgeted benchmark price of $65.

Nigeria’s fiscal deficit widened slightly to 3.1 per cent of GDP in 2025, but remained lower than in pre-reform years. Nigeria’s economy grew by four 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 Middle East conflict, the World Bank report observed, is 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.

The report therefore 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.

It also argued that macroeconomic stability alone is 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.

It advised 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 noted that 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.

Presenting the report in Abuja, 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 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 the 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 the Central Bank of Nigeria (CBN) to keep an appropriate monetary policy, anchor inflation expectations, absorb shocks, limit interventions, and ensure FX flexibility, while providing clear, consistent signals to anchor expectations.

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

Clearly, the Nigerian economy is at a critical juncture. As the world grapples with a confluence of escalating uncertainties, the impact casts an ominous shadow over Nigeria’s economic outlook. To navigate this turbulent landscape and secure a prosperous future for its burgeoning population, Nigeria, beyond the World Bank’s advice, must be proactive.

Nigeria’s economic reality calls for a bold, decisive “big bang” strategy rather than the slow, incremental approach that had defined policy responses in recent years. The country’s fiscal buffers remain too weak to support meaningful capital expenditure, even as external reserves appear relatively adequate to cover import needs in the medium to long term.

Economic growth continues to limp along a difficult recovery path, weighed down by persistent structural challenges such as high unemployment and a significant infrastructure deficit. Financial conditions are still subdued, and although there has been some improvement in credit to the private sector, it remains below desired levels.

Delays in budget implementation have deprived the economy of much-needed stimulus, thereby constraining growth. While tight monetary conditions have helped moderate inflation, this alone is insufficient to drive meaningful expansion.

To move forward, there must be a deliberate shift toward innovative revenue generation, improved efficiency in public asset management, and the elimination of waste. Addressing insecurity is equally critical, as it continues to undermine economic confidence and investment.

Additionally, diversification of the economy away from its over-reliance on oil remains paramount. Investing strategically in sectors such as agriculture, manufacturing, and technology can create new avenues for growth, employment, and export earnings, reducing vulnerability to global oil price fluctuations. 

Strengthening domestic production capacity is equally crucial. By fostering a conducive business environment and improving infrastructure, Nigeria can reduce its dependence on imports and build a more self-reliant economy.  

Ultimately, without a coordinated and bold fiscal response to complement monetary policy, Nigeria’s economic recovery will remain fragile, and the opportunity for sustained growth may continue to slip away.