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Nigeria’s fiscal outlook for 2025 is under serious threat, according to the International Monetary Fund, which has warned that the country must urgently revise its budget targets or face a deepening financial crisis.

The IMF’s latest Article IV consultation report, released on Wednesday, points to a significant risk of Nigeria exceeding its fiscal deficit projections for the year, driven by a combination of falling oil prices, lower production levels, and challenges in capital expenditure execution.

It called on the Nigerian authorities to take immediate action to recalibrate the country’s fiscal policies and budget expectations to reflect the current economic realities.

The report read, “Ensuring that the fuel subsidy savings accrue to the government would yield the proposed neutral stance—the full-year savings are estimated at two per cent of GDP. If the savings are not realised starting H2-2025 and given that tax policy reforms under consideration are not expected to deliver significant revenue gains in 2025, adjustment would have to come from the expenditure side (0.6 per cent of GDP), with staff recommending to prioritise adjustments to recurrent spending to protect growth-enhancing investments.”

The IMF’s findings are stark, warning that Nigeria’s fiscal deficit could reach 4.7 per cent of its Gross Domestic Product in 2025, significantly higher than the budgeted target.

It noted, “Absent policy actions, the fiscal deficit in 2025 would exceed budget expectations,” further underlining the urgency of revising the fiscal plan.

The report noted that the 2025 budget, which was originally based on optimistic projections for hydrocarbon revenues, now faces considerable challenges as a result of the global downturn in oil prices and the ongoing uncertainty in the oil sector.

According to the IMF, “The 2025 budget was based on optimistic hydrocarbon revenue projections, even before the price decline since April,” highlighting the disconnect between initial revenue assumptions and the current economic environment.

In addition to the revenue shortfall, the IMF expressed concerns over the implementation of capital expenditure, a crucial component of the 2025 budget.

Despite ambitious spending plans, the IMF noted that Nigeria’s history of difficulties in executing large-scale infrastructure projects suggests that the capital expenditure targets will be challenging to meet.

“Budgeted capital expenditure is likely to exceed implementation capacity, given execution in previous years,” the IMF warns, indicating that infrastructure development could be further delayed, exacerbating the fiscal challenges.

In light of these developments, the IMF strongly recommended that Nigeria’s government take immediate action to adjust its fiscal policies and revise the 2025 budget. “The authorities have announced that they will adjust the budget to lower oil prices, while pushing for higher hydrocarbon production and continuing with administrative efforts to boost revenue,” the report stated.

However, it is clear that, without a formal revision of the budget and updated fiscal targets, Nigeria will remain vulnerable to escalating economic instability. The report read, “However, without a revised budget or announced budget targets, projections of the fiscal stance and financing needs are uncertain.”

The IMF recommended that Nigeria adopt a neutral fiscal stance in 2025, a policy designed to safeguard macroeconomic stability while maintaining crucial investments in growth-enhancing sectors.

The IMF also emphasised the importance of enhancing social support for vulnerable households, particularly in light of Nigeria’s increasing poverty levels and food insecurity.

It urged the government to move swiftly to scale up its social safety nets to mitigate the adverse effects of economic hardship on the most vulnerable populations.

In its analysis, the IMF highlighted the need for Nigeria to diversify its revenue base away from oil dependency, emphasising that the country must broaden its tax base and strengthen revenue mobilisation efforts to avoid an over-reliance on oil revenues.

The IMF urged the government to continue its tax reform agenda, which includes modernising the value-added tax and corporate income tax systems. However, it is clear from the IMF’s analysis that these reforms will take time to yield significant results.

Despite the IMF’s concerns, Nigerian authorities have expressed their commitment to recalibrating the 2025 budget and implementing the necessary adjustments to address the country’s fiscal challenges.

The report also captured the Federal Government’s response, noting, “The authorities are confident that increased oil production and in-year adjustments will be sufficient to compensate for lower oil prices in 2025. They stressed their resolve to bring the savings from the fuel subsidy removal to the budget and staying the course with domestic revenue mobilisation, while looking to diversify financing sources and relying more on private sector involvement in delivering infrastructure projects.”

The report further highlighted the importance of managing Nigeria’s growing sovereign debt. Public debt increased to 53 per cent of GDP in 2024, up from 49 per cent in 2023, largely due to the fiscal deficit and exchange rate depreciation.

The IMF warned that if fiscal reforms are not implemented, Nigeria’s debt burden will continue to grow, placing additional pressure on public finances. It also suggested that Nigeria explore alternative financing options, such as public-private partnerships and pre-export financing, to ease the pressure on external borrowing.

However, the IMF stressed that any new financing arrangements should be carefully managed to avoid exacerbating Nigeria’s debt vulnerabilities. The IMF also addressed the importance of improving capital expenditure management and prioritising investments that yield high economic returns.

The report highlighted the need for Nigeria to rationalise its capital expenditure, focusing on projects critical for long-term growth and job creation. The IMF further emphasised the need for enhanced public investment management and accurate fiscal data, particularly in light of Nigeria’s ongoing challenges with budget execution.

“Staff encourages the authorities to enhance the accuracy of fiscal forecasting with the 2026 budget. A budget based on reasonable revenue projections will better allow for the needed prioritisation of initiatives,” the report noted.

The IMF further praised Nigeria’s significant economic reforms, recognising progress in macroeconomic stability and resilience over the past two years.

It particularly commended the Central Bank of Nigeria for maintaining a tight monetary policy to combat inflation and welcomed reforms aimed at strengthening the banking system, enhancing financial inclusion, and promoting capital market growth.