IMF Projects Nigeria’s Inflation to Hit 37% by 2026 Amid Economic Pressures and Policy Concerns

Nigeria’s economic outlook has taken a sobering turn as the International Monetary Fund (IMF) forecasts a sharp rise in the country’s headline inflation to 37 per cent in 2026, a significant spike from the 26.5 per cent expected in 2025. The projection was detailed in the IMF’s April 2025 World Economic Outlook, citing structural constraints, persistent price pressures, and global economic vulnerabilities as key drivers.

The report, released on Tuesday, follows the National Bureau of Statistics’ (NBS) rebasing of Nigeria’s Consumer Price Index (CPI) in January 2025, which now reflects more current consumption patterns. Despite a brief period of easing, inflation appears poised to escalate, sparking concerns among local economists and raising questions about the sustainability of Nigeria’s current macroeconomic trajectory.

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Inflation Surge Signals Deepening Economic Strain

The focus keyword “Inflation” reflects the core challenge confronting Nigeria’s economy. According to the IMF, the inflation rate, which averaged 33.2 per cent in 2024, is projected to decline modestly to 26.5 per cent in 2025 before rebounding sharply to 37.0 per cent in 2026. This sudden jump, the Fund noted, reflects not only local supply-side bottlenecks but also heightened external vulnerabilities, particularly in oil markets.

The rebase of the CPI, which shifted the base year from 2009 to 2024, initially resulted in a statistical moderation of headline inflation—down to 24.48 per cent in January 2025 from 34.80 per cent in December 2024. However, this reprieve proved short-lived, with inflation inching back up to 24.23 per cent by March 2025, driven by rising food costs, currency volatility, and logistics challenges.

Economists Critique IMF Outlook as “Overstated”

Reactions to the IMF’s projection have been mixed, with some Nigerian economists calling the forecast overly pessimistic. Adewale Abimbola, a Lagos-based economist, argued that inflation has stabilized in recent months and that the 37 per cent forecast may not reflect the current domestic realities.

“Since the rebasing, inflation has hovered around 23 to 24 per cent. Even in 2024, when inflation was unrelenting, it averaged 33 per cent. So, I believe the IMF’s 37 per cent projection for 2026 is exaggerated,” Abimbola said.

He emphasized the need for improved policy interventions to boost productivity and stabilize the naira, including fiscal discipline, improved security in agricultural zones, and the continuation of initiatives like the naira-for-crude policy to moderate fuel prices.

Similarly, Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, noted that the IMF outlook fails to account for domestic policy flexibility.

“Inflation in Nigeria is largely driven by supply-side constraints and exchange rate instability. If we address insecurity and support manufacturers, inflation will ease,” Yusuf said.

He criticized the 37 per cent figure as a worst-case scenario, arguing that better fiscal management and oil revenue gains could steer Nigeria toward more stability.

Growth Forecast Slashed, External Position Weakens

In addition to the grim inflation forecast, the IMF revised Nigeria’s GDP growth outlook for 2025 down to 3.0 per cent from 3.2 per cent, and further to 2.7 per cent in 2026, citing weak global oil prices and reduced output. These downgrades compound Nigeria’s challenges, with the country remaining heavily reliant on oil exports for foreign exchange and budgetary support.

While Nigeria posted a $6.83 billion balance of payments surplus in 2024—driven by a goods trade balance of $13.17 billion—analysts, including JP Morgan, warn this could reverse if oil prices stay below the $60 per barrel fiscal breakeven point. The IMF projects the current account surplus to decline from 9.1% of GDP in 2024 to 5.2% in 2026, reflecting weaker trade and capital inflows.

Fitch Ratings offered a more optimistic scenario, forecasting that Nigeria’s current account surplus would average 3.3% across 2025 and 2026, buoyed by increased refining capacity and energy reforms.

Policy Recommendations: Stability Hinges on Reform

Prof. Adeola Adenikinju, President of the Nigerian Economic Society, acknowledged that Nigeria’s outlook mirrors global challenges but warned that local structural issues—such as insecurity, high transport costs, and weak infrastructure—were intensifying inflation and curtailing growth.

He cautioned that Nigeria’s expansionary fiscal policies, if not carefully managed, could worsen inflation through excessive borrowing and deficit financing.

“We must watch the exchange rate and reduce CBN financing of deficits. Otherwise, inflation will continue to rise,” he said.

With the IMF also projecting meager real per capita income growth—just 0.6 per cent in 2025 and 0.3 per cent in 2026—economists say urgent reforms are needed to boost productivity, attract private investment, and diversify the economy beyond oil.

The Central Bank of Nigeria may be forced to raise interest rates again in the coming months to curb inflationary pressures, a move that risks further slowing economic activity in the short term.