Nigeria’s Fiscal Deficit Set to Rise to 4.7% of GDP in 2025, Says IMF

Nigeria’s budget deficit should expand to 4.7% of GDP in 2025, reversing a modest improvement observed in 2024, the International Monetary Fund (IMF) warned in its latest article IV report.

The expected deterioration underlines the deep vulnerabilities in the Nigeria public finance structure, which is still strongly exposed to the volatility of oil income and aggravated by the increasing pressure of expenditure.

The projection of the IMF is much higher than the 3.9% deficit described in the federal budget of Nigeria in 2025, revealing a probable income deficit because the world prices of oil remain under pressure and that domestic production.

Already, the fund estimates that budgetary assumptions – established approximately 1.78 million barrels per day at $ 77 per barrel – are far too optimistic. Instead, IMF staff are lowering production levels around 1.45 MBPDs and a global oil price of $ 70 per barrel. This would seriously undermine the benefits preserved by Nigeria and would limit the overall implementation of the budget.

In 2024, Nigeria managed to reduce its budget deficit by 4.8% of GDP in 2023 to 4.1%, largely due to the gains induced by the exchange rate in oil -related income and an improvement in non -oil tax collection. However, these gains prove to be unbearable in 2025, the country likely to enter a deeper deficit territory. In particular, interest payments are already consuming more than 100% of federal income, according to the analysis of the sustainability of the debt of the IMF, which makes fears fear concern about future loans and the risk of debt bearing.

Expenses, revenue shift persists

On the spending side, government’s salary bills and pension liabilities should grow two figures, in particular following new salary prices and the recruitment of security forces. At the same time, the elimination of Nigeria’s fuel grants – has been conducted as a budget reform step – causes money lower than expected. While the government expected grant savings equivalent to 2% of GDP in 2024, the IMF said that only 1.1 Billion de Nairas (about 0.6% of GDP) was carried out, mainly due to reintroduced price ceilings and incomplete market liberalization.

The income side is promising, but progress remains slow. The roadmap under tax reform aims to extend the country’s close tax base by introducing measures such as electronic invocation, automation of VAT and the taxation of the digital economy. However, the implementation has been uneven in the 36 states of Nigeria, many of which still do not have the capacity to impose modern tax collection systems.

According to the IMF, income from the general government of Nigeria represented 7.3% of GDP in 2024, well below the average of sub -Saharan Africa from 13 to 15%. Although value -added tax reforms (VAT) and company income tax began to improve the mobilization of non -oil income, their impact will only be materialized in the medium term, according to the fund.

Structural pressures, assembly debt

Nigeria’s public debt ratio remains moderate at around 46%, but the structure of the debt becomes more and more unbearable. More than 70% of the borrowings of the federal government are now made at two -digit internal interest rates, foreign investors distrust macroeconomic uncertainty and FX volatility.

Efforts to collect funds through the Eurobonds or concessional loans have so far been cautious, as authorities are looking to avoid costly currency passives. The IMF noted that the government had excluded new loans from the Central Bank of Nigeria (CBN) via the establishment of tracks and means, an earlier source of deficit monetization which had attacked inflation and weakened the Naira.

The fund also underlined the need for a flexible macroeconomic framework, calling on the authorities to align budgetary and monetary policies, to strengthen the stability of the exchange rate and to guarantee better management of the cash between the AMDs.

IMF recommendations

To fill the budget gap and guarantee long -term sustainability, the IMF has made several key recommendations:

• Fully release the fuel market to grasp the full value of the elimination of subsidies, including the implementation of an automatic petrol prices formula;
• Accelerate tax reforms, in particular by unifying the administration of VAT, by widening the coverage of expansion and by eliminating ineffective tax exemptions;
• Rationalize capital expenditure, prioritize projects with high economic yields while remaining with low impact;
• CAP recurring growth expenditure, especially in non -essential sectors;
• Establish a budgetary anchor, such as an income service ceiling, to guide the discipline of loans and expenses.

The fund warning comes as Nigeria is clustering with an increase in inflation, volatile FX markets and moderate growth, the composition of budgetary stress. Analysts claim that the government is increasing considerably increases income and reduces unnecessary spending, the deficit planned could even exceed 5% of GDP in a decrease scenario involving other oil shocks or damping in nairas.

The Ministry of Finance is expected to revise its medium -term expenditure framework (MTEF) by September, possibly adjusting budgetary assumptions to reflect the drop in oil revenues. Meanwhile, tax reform bills of 2025 – signed last week – should allow additional income -generating measures.

The report concludes that if Nigeria has taken daring measures to reform its economy, the coming road remains fragile. Supporting reforms in the face of political repression, income deficits and inflationary pressures will be the key to stabilizing the budgetary health of Nigeria.