IMF backs CBN policy adjustment as Nigeria’s inflation declines

KEY POINTS

• The IMF has backed the Central Bank of Nigeria’s monetary policy adjustment, saying declining inflation has created room for a measured change while policy remains restrictive.
• The Fund projects Nigeria’s economy to grow by 4.2 per cent in 2026, up from 4.0 per cent in 2025, with growth expected to reach 4.3 per cent in 2027.
• Higher oil prices, increased foreign exchange receipts and rising external reserves have supported improvements in Nigeria’s macroeconomic conditions.
• The IMF urged the Federal Government to boost non-oil revenue, improve the business environment and direct fuel subsidy savings towards vulnerable households.

MAIN STORY

The International Monetary Fund (IMF) has backed the Central Bank of Nigeria’s (CBN) monetary policy adjustment, describing it as appropriate amid declining inflation while stressing that the overall policy stance remains restrictive.

The Director of the IMF’s African Department, Zeine Zeidane, stated this at the department’s news briefing during the ongoing IMF/World Bank Annual Meetings in Bangkok, Thailand. He said Nigeria had made significant progress in reducing inflation, creating room for the CBN to adjust its policy without moving towards an accommodative stance.

According to Zeidane, the adjustment would lower the real interest rate, but it did not amount to monetary easing because the overall policy position remained tight. His comments suggest that the Fund views the change as a recalibration of monetary policy rather than a shift towards stimulating economic activity through looser financial conditions.

Beyond monetary policy, Zeidane highlighted improvements in Nigeria’s macroeconomic conditions, supported by higher oil prices, increased foreign exchange receipts and rising external reserves. These developments have strengthened the country’s external position and helped improve foreign exchange availability.

However, he said the government needed to increase non-oil revenue to create more fiscal space for critical sectors such as education, healthcare and infrastructure. Greater revenue mobilisation would give the government more capacity to fund public services and development priorities without relying excessively on volatile oil earnings.

Zeidane also identified Nigeria’s large domestic market, young entrepreneurs and technology-savvy population as significant investment opportunities, provided the country addressed structural constraints that limit business growth.

He stressed the importance of reforms in governance, the business environment and economic integration to accelerate economic growth and create jobs. Improving these areas, he said, would help Nigeria translate its macroeconomic progress into stronger private investment and broader economic opportunities.

The IMF official also addressed energy subsidies, urging the government to direct savings from subsidy reforms towards vulnerable households rather than maintaining broad-based support.

He argued that energy subsidies often disproportionately benefit wealthier segments of society, reducing the resources available to people who need assistance most. He therefore advocated a gradual phase-out of subsidies alongside measures to ensure that the resulting savings reach vulnerable households.

The IMF’s assessment of Nigeria’s economic outlook was reinforced by the Deputy Director of its African Department, Montfort Mlachila, who said improved external conditions had strengthened the country’s growth prospects.

Mlachila attributed part of the improvement to higher oil prices, which had increased foreign exchange receipts and reserves, contributing to better liquidity in the economy.

The IMF projects Nigeria’s economy to grow by 4.2 per cent in 2026, compared with 4.0 per cent in 2025, with growth expected to accelerate to 4.3 per cent in 2027. Mlachila said favourable external conditions had contributed to the outlook, while the services sector remained the main driver of economic activity.

He also noted that declining inflation since 2025 had improved Nigeria’s macroeconomic conditions and foreign exchange availability. However, he cautioned that sustaining stronger growth would require deeper structural reforms, improved domestic revenue mobilisation and a better business environment capable of attracting private investment.

The IMF’s latest Regional Economic Outlook similarly highlighted the role of policy reforms in improving economic conditions across the region. The report said foreign exchange market reforms and fuel subsidy reductions in Nigeria and Ethiopia had supported greater macroeconomic stability.

It added that improvements in fiscal revenue and monetary policy frameworks had created a clearer basis for private investment across the region.

Taken together, the IMF’s assessment points to improving conditions for Nigeria’s economy, supported by easing inflation and stronger external receipts. However, the Fund’s recommendations indicate that sustaining the progress will depend on the government’s ability to strengthen public finances, improve the conditions for businesses and ensure that the benefits of reform reach vulnerable households.

THE ISSUES

The IMF’s endorsement of the CBN’s adjustment distinguishes a measured policy change from a broader move towards monetary easing. Although declining inflation has created room for adjustment, the Fund maintains that monetary policy remains restrictive.

Nigeria’s growth outlook has also benefited from higher oil prices and improved foreign exchange receipts. However, dependence on favourable external conditions leaves the economy exposed to potential changes in oil markets.

The IMF’s call for higher non-oil revenue highlights the need to strengthen public finances, while its recommendations on energy subsidies underscore the importance of protecting vulnerable households as reforms continue.

WHAT’S NEXT

The outlook for Nigeria will depend partly on whether declining inflation and improved foreign exchange conditions can be sustained. The IMF has called for deeper structural reforms, stronger non-oil revenue collection and improvements to the business environment to support private investment.

The government also faces the challenge of directing subsidy savings towards vulnerable households while expanding funding for essential public services.

BOTTOM LINE

The IMF has endorsed the CBN’s monetary policy adjustment as appropriate amid declining inflation, while maintaining that policy remains restrictive. Although higher oil prices and improved external conditions have strengthened Nigeria’s growth outlook, sustaining the gains will require stronger public revenue, structural reforms and targeted support for vulnerable households.