The International Monetary Fund (IMF) has issued a cautionary note to Nigeria over its increasing reliance on domestic debt financing, warning that the strategy could heighten financial system vulnerabilities and crowd out private sector growth.
In its latest Regional Economic Outlook for Sub-Saharan Africa, released during the ongoing World Bank/IMF Annual Meetings, the IMF said that Nigeria’s growing dependence on local banks to fund fiscal deficits is deepening the "bank-sovereign nexus," a trend that could strain bank balance sheets and limit credit availability.
Key Warnings from the IMF:
- Interest payments now exceed 30 per cent of Nigeria’s government revenues, among the highest in the region.
- Domestic borrowing costs have surpassed external rates, raising refinancing risks.
- The country faces $2.3 billion in Eurobond repayments due in 2025, one of the largest in Africa.
- Overdependence on oil remains a major structural weakness, leaving the economy vulnerable to global price shocks.
Abebe Aemro Selassie, Director of the IMF’s African Department, acknowledged Nigeria’s recent reforms, including exchange rate unification and tighter monetary policy as positive steps.
However, Selassie insisted on the need for deeper fiscal discipline and transparency to sustain investor confidence and macroeconomic stability.
"Domestic borrowing has offered short-term relief, but it’s not a cure-all. We’re seeing elevated interest rates and fragile banking sectors that could reverse reform gains if not carefully managed," he said.
Reform Momentum and Investor Sentiment
Despite the warnings, the IMF said that Nigeria’s reform efforts are beginning to yield results.
Growth projections for 2025 have improved, and inflation is showing signs of easing.
Still, the Fund stressed that further policy calibration is essential to meet inflation and growth targets.
Meanwhile, Tony Elumelu, Chairman of UBA Group, offered a counterpoint during a separate session, advocating for domestic capital mobilisation as a viable solution to Africa’s infrastructure deficit.
At the launch of UBA’s white paper, Banking on Africa’s Future, Elumelu argued that the continent could unlock over $4 trillion internally to fund critical sectors like energy and youth development.
Harvard Business School’s Dr Marlous van Waijenburg, who presented the paper, echoed Elumelu’s optimism, stating that Africa’s challenge lies not in capital scarcity but in weak financial intermediation.
Tax Reform as a Catalyst for Growth
In a related development, Taiwo Oyedele, Chairman of Nigeria’s Presidential Committee on Fiscal Policy and Tax Reforms, reassured global investors that sweeping tax reforms are aimed at simplifying compliance and reducing business risks.
Speaking on the sidelines of the meetings, Oyedele outlined plans to consolidate Nigeria’s 60+ taxes into a streamlined structure, automate compliance through technology, and shift the tax burden away from low-income earners and small businesses.
"Our goal is to create a progressive, transparent, and investor-friendly tax system," Oyedele said, adding that the reforms will also exempt Diaspora remittances and investments from taxation.
Diaspora Engagement and Clarifications
During a virtual session with Nigerians abroad, Oyedele and NiDCOM Chair Dr Abike Dabiri-Erewa addressed concerns over the new fiscal framework, which is set to take effect in January 2026.
They revealed that the reforms are designed to protect vulnerable populations while enhancing Nigeria’s attractiveness as an investment destination.
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