The International Monetary Fund has cautioned the Nigerian government to remain vigilant in light of growing global trade tensions and financial market volatility, warning that these could erode the country’s revenue from commodity exports and complicate its external financing outlook.
The warning came during the Global Financial Stability Report press briefing held on April 22, 2025, as part of the ongoing IMF/World Bank Spring Meetings in Washington D.C.
Speaking at the event, Jason Wu, Assistant Director of the IMF’s Monetary and Capital Markets Department, acknowledged Nigeria’s recent macroeconomic progress but noted that external risks remain significant. He cited recent reforms, particularly the liberalisation of the foreign exchange market, as positive steps, but stressed the need for caution as global conditions evolve.
“In the case of Nigeria, macroeconomic performance has held up, GDP growth has been fairly consistent, and inflation has been coming down,” Wu said. “Earlier this year, we saw Nigeria’s sovereign credit spreads lowering. I think the reforms that the authorities have done, including the liberalisation of exchange rates, has helped in that regard.”
However, Wu noted that the global financial environment remains fragile, with declining risk appetite across markets leading to renewed pressure on frontier economies like Nigeria.
“This is when we might see increases in sovereign spreads that will challenge the external picture for Nigeria,” Wu added. “Nigeria’s sovereign spread has increased in recent weeks as stock markets globally have declined.”
He also pointed out that commodity-dependent countries like Nigeria are particularly vulnerable to a slowdown in global trade caused by escalating geopolitical tensions.
“If trade tensions are going to lead to lower global demand for commodities, this will obviously weigh on the revenue that they will receive,” he warned. “I think both of those developments would counsel that authorities remain quite vigilant to these developments and take appropriate policies to counter them.”
Caution on borrowing costs
Also speaking at the briefing, Tobias Adrian, IMF Financial Counsellor and Director of the Monetary and Capital Markets Department, responded to questions about the return of African countries to the Eurobond market and the challenge of high borrowing costs.
Many sub-Saharan African countries, including Nigeria, are once again approaching international capital markets after a period of relative absence. However, market conditions remain tight, and the cost of borrowing remains unsustainably high for several countries.
Adrian highlighted three key points to guide policy decisions on debt sustainability. First, he acknowledged the scale of the shocks African countries have faced in recent years, particularly the pandemic and the global inflation spike that followed.
“The pandemic had an outsized impact on many countries. The inflation that ensued was very costly, particularly for countries that import commodities.
“The adverse economic shocks have been extraordinary,” he said.
Second, Adrian pointed out that financing costs are shaped both by global financial conditions and by country-specific fundamentals. He emphasised that macroeconomic buffers and credibility are essential in reducing the cost of capital over time.
“The mandate of the Fund is very much focused on macro-financial stability. Getting back to a place with buffers, which then can lead to lower financing costs, is the main goal,” Adrian explained.
Third, he reaffirmed the IMF’s role as a “catalytic partner” working with governments to restore macroeconomic stability, create the right environment for growth, and ultimately lower borrowing costs.
What you should know
- Nigeria has introduced a raft of reforms over the past year, including the removal of fuel subsidies, exchange rate unification, and tighter monetary policy. These steps have been recognised by the IMF and market participants as necessary for restoring investor confidence.
- Nigeria’s sovereign spreads—an indicator of risk perception in global capital markets—declined earlier this year, reflecting increased optimism over these reforms. However, the recent rise in spreads suggests that global financial uncertainty continues to weigh on investor sentiment.
- The IMF’s call for vigilance is timely. Nigeria’s revenue outlook is closely tied to oil and gas exports, which account for over 70% of export earnings and nearly 50% of government revenue. A prolonged slowdown in commodity demand could lead to fiscal slippages and renewed pressure on the naira.
- The IMF’s latest projections show Nigeria’s current account surplus narrowing from 9.1% of GDP in 2024 to 6.9% in 2025, and further to 5.2% in 2026—a reflection of both declining oil prices and rising imports.
- At the same time, Nigeria’s inflation, though rebased and moderating, remains high at 24.23% as of March 2025. The IMF projects inflation to average 26.5% in 2025 and rise to 37% in 2026, amid continued exchange rate volatility and supply chain disruptions.
- With global trade dynamics shifting and financial conditions tightening, policymakers face a difficult balancing act—maintaining investor confidence while protecting vulnerable populations from the effects of reform and inflation.
