Market News

 By : gbenga_salau

Nigeria’s economy has been projected to consolidate its reform gains and record between 3.6 and 4.0 per cent Gross Domestic Product (GDP) growth in 2026, underpinned by non-oil sector expansion, policy stability, and renewed investor confidence.

This projection, contained in the FSDH Merchant Bank’s newly released Nigeria’s Macroeconomic Report, titled “From Reform to Resilience: Unlocking Nigeria’s Next Growth Chapter,” painted a cautiously optimistic picture of the country’s economic outlook as recent fiscal and monetary adjustments begin to yield measurable results.

The report drew attention to fiscal pressures despite improved revenues. Nigeria’s total public debt has surged to N152 trillion by mid-2025, driven by exchange rate adjustments and fresh borrowing, although the debt-to-GDP ratio remains moderate at about 40 per cent. “External debt servicing, which reached a record $4.7 billion in 2024, continues to strain fiscal space, absorbing close to nine per cent of export receipts.

“New measures such as the 15 per cent import duty on petrol and diesel introduced in October 2025 and the Capital Gains Tax reform taking effect in January 2026 are expected to broaden the tax base, promote fairness, and strengthen fiscal sustainability, even if they create short-term price pressures.

“Macroeconomic indicators point to an improving environment. GDP growth reached 4.2 per cent in the second quarter of 2025, the highest since 2021, as agriculture, transport, ICT, and finance sectors recorded strong performance. Inflation has declined steadily below 20 per cent for the first time in two years, external reserves rebounded by over $5 billion in the third quarter to $42.9 billion, and the naira appreciated consistently since mid-year,” the bank said.

FSDH projected inflation rate to moderate further to between 17 and 19 per cent in 2026, from 18 per cent in September 2025 and a peak of 24.5 per cent in the year, aided by a more stable exchange rate, easing food prices, and sustained disinflation momentum.

“The Naira, which appreciated to N1,460 per dollar in October 2025, is forecast to remain broadly stable within the N1,520 to N1,590 range in 2026, supported by rising reserves and improved market transparency.

“In its moderate-case projection, adopted as the base scenario, FSDH assumes an average oil price of $70 per barrel and production at 1.62 million barrels per day, resulting in 3.8 per cent GDP growth, inflation at 20.9 per cent, external reserves of $39.6 billion, and an average exchange rate of N1,523 per dollar.

“A best-case outlook, driven by stronger oil prices and improved revenue implementation, could see growth reach 4.4 per cent, while a worst-case scenario marked by oil market weakness and domestic supply disruptions could slow expansion to 2.2 per cent and push inflation to about 29 per cent,” the report read.

It added that on fiscal and monetary dynamics, a gradual shift from aggressive monetary tightening to cautious easing, following the Central Bank of Nigeria’s (CBN) first interest rate cut in five years in September 2025, when the Monetary Policy Rate was lowered from 27.5 per cent to 27 per cent.

FSDH anticipates further moderation in the MPR to between 21 and 24 per cent in 2026, conditional on sustained price stability and resilient foreign exchange inflows.

While the policy easing is expected to relieve borrowing costs, the bank notes that monetary transmission remains weak, with wide spreads between the policy rate, deposit rates, and market lending rates, underscoring the need for stronger coordination and credibility in monetary signalling.

It added that real interest rates have turned positive, reflecting a more credible policy stance and renewed appetite for Naira assets, noting that capital market sentiment has strengthened, with bond yields easing from nearly 20 per cent in late 2024 to around 16 per cent, while the Nigerian Exchange All Share Index has gained more than 50 per cent year-to-date, supported by stable macro conditions and rising corporate earnings.

Looking ahead, FSDH identified several factors that will define Nigeria’s macroeconomic direction in 2026–oil price volatility, digital financial inclusion, the banking sector recapitalisation drive scheduled for completion by April 2026, implementation of the new tax law, election-related spending pressures, and industrial tensions linked to the Dangote Refinery.

The bank noted that Nigeria’s recent removal from the Financial Action Task Force grey list will further strengthen investor confidence, enhance financial transparency, and lower cross-border transaction costs, positioning the country for increased portfolio inflows and stronger correspondent banking relationships.

The report stressed that Nigeria’s economic trajectory is shifting from short-term stabilisation to long-term resilience. The combination of foreign exchange liberalisation, subsidy removal, fiscal reforms, and renewed monetary discipline has begun to restore macroeconomic balance and investor trust.

To consolidate these gains, FSDH recommended deepening investment in productive sectors such as manufacturing, agribusiness, and ICT, accelerating the monetisation of public assets through public-private partnerships, improving fiscal efficiency, and leveraging the ongoing banking recapitalisation to expand credit access. It also urges that fiscal savings be channelled toward infrastructure, education, and human capital development to translate macroeconomic stability into inclusive, sustainable growth.

According to FSDH, as reforms mature and external headwinds ease, 2026 could mark the start of Nigeria’s next growth phase, one defined less by crisis management and more by resilience, productivity, and investor confidence.