IMF Urges Nigeria to Raise Spending Quality and Revenue as Growth Forecast Brightens

The International Monetary Fund has urged Nigeria to raise the quality of public spending and strengthen domestic revenue mobilisation, warning that the country's growth outlook, while improving, is still not translating fast enough into lower poverty.

The Fund's latest assessment, delivered against the backdrop of the IMF-World Bank Annual Meetings, places expenditure efficiency and revenue at the centre of Nigeria's fiscal challenge. The message is that higher growth alone will not fix the budget if spending is poorly targeted and the revenue base remains narrow.

The IMF has separately projected that Nigeria's growth will rise to about 4.3 percent in 2027 as inflation eases, a more optimistic near-term view than it has held for much of the reform period. But the Fund has also cautioned that headline expansion has yet to dent the country's high poverty rates, an implicit argument that the composition of growth — and of spending — matters as much as its pace.

The warning arrives as the Federal Government frames single-digit inflation as a fiscal objective, arguing that lower price growth will reduce the cost of borrowing and free up resources for capital projects.

Spending quality: the issue beneath the deficit

Nigeria's budget debate has long focused on the size of the deficit and the cost of servicing debt. The IMF's emphasis on spending quality shifts the lens to composition: how much of the budget goes to capital formation as opposed to recurrent costs, and whether subsidies and interventions are reaching their intended beneficiaries. In a country where debt service consumes a large share of revenue, the opportunity cost of inefficient spending is unusually high — every naira poorly deployed is a naira unavailable for infrastructure or social investment.

Revenue is the binding constraint

Nigeria's tax-to-GDP ratio remains low by global standards, and the Fund has repeatedly pointed to the need to broaden the base rather than simply raise rates. Recent reforms aimed at harmonising taxes and improving collection are steps in that direction, but the revenue gains are gradual. Without them, the fiscal arithmetic depends on oil prices and borrowing — both of which the IMF views as fragile foundations.

Why the poverty caveat matters

The Fund's observation that growth is not easing poverty quickly is a caution against complacency. It suggests that the recovery is concentrated in sectors — finance, telecoms, and parts of services — that do not absorb the mass of low-skilled labour, while agriculture and manufacturing, which employ far more people, remain constrained. That is the real test of the government's agenda: whether the next phase of growth is broad enough to change livelihoods, not just headline output.

What to watch

The near-term markers are the September inflation print, the trajectory of the naira and the pace of federal capital spending in the final quarter. If these improve together, the IMF's more constructive growth forecast gains credibility. If they diverge, the expenditure-quality warning will look prescient.