Comercio Partners Report: 10 years of money market and living costs Part 5

The fifth part of Comercio Partners’ 10 Years of Money Market and Living Costs report examines the structural fiscal, security and political challenges that have shaped Nigeria’s economic performance over the past decade.

It traces the country’s weak tax collection and heavy dependence on oil revenues, highlighting recent improvements in tax receipts while noting the risks posed by naira depreciation and the need to broaden the tax base.

The report also examines Nigeria’s rising debt service burden, arguing that the key fiscal challenge is not simply the size of public debt but the proportion of government revenue committed to servicing it.

It highlights the importance of ongoing tax reforms in improving revenue generation while balancing the need to maintain investor confidence and fiscal predictability.

The Revenue Failure That Preceded Everything

Nigeria entered the decade with one of the lowest tax-to-GDP ratios among major economies, consistently below 7%, compared with a sub-Saharan African average of 14–16% and an emerging-market benchmark of 18–20%.

The issue was not only low income; it was weak tax collection, narrow coverage and limited political will. Oil revenues carried the fiscal system, so when oil receipts fell, government spending on infrastructure, health, education and social protection came under pressure.

This left Nigeria exposed to every major shock. The 2016 recession found the government with little fiscal buffer. COVID-19 exposed the limits of targeted cash transfers.

The 2023 subsidy removal revealed the absence of a ready safety net for an economy where most workers are informal. Tax collection has improved sharply in recent years. FIRS revenue rose significantly from ₦5.3 trillion in 2019 to ₦12.3 trillion in 2023 and further surged to ₦21.6 trillion in 2024, exceeding its target of ₦19.4 trillion.

But the headline number needs context: part of the nominal increase reflects naira depreciation, which lifted the naira value of foreign-currency-linked receipts and import duties. The more important shift is structural.

FIRS has strengthened sector audits, taxpayer data systems, joint enforcement with states and electronic invoicing for large companies. These reforms aim to reduce VAT leakage, widen the tax base and move Nigeria closer to its 18% tax-to-GDP target.

The Debt Trap — Real and Hidden

The reform story is encouraging, but Nigeria’s fiscal pressure is shifting. The core risk is no longer just the size of public debt, but the share of revenue consumed by its servicing. The IMF projects Nigeria’s debt-service-to-revenue ratio to rise from 40.8% in 2024 to 53.7% in 2026. In simple terms, more than half of every ₦100 collected by the federal government could go to debt service before funding schools, roads, hospitals, or social protection.

This is why Nigeria’s debt problem is better understood in terms of revenue rather than GDP. The IMF classifies the country’s debt risk as moderate because debt-to-GDP is expected to decline as the economy grows.

But that misses the binding constraint: government revenue remains too small relative to its obligations. A state that spends over half its revenue on interest and debt service has limited room to invest in growth.

The 2025 tax reforms are therefore important because they attempt to change the arithmetic: raise revenue, broaden the tax base and reduce dependence on oil. But 2024 also showed the limits of reform.

The proposed 70% windfall tax on banks’ FX gains, applied retrospectively, highlighted the tension between urgent revenue needs and investor confidence. Similarly, resistance from states to a VAT increase showed that federal-state politics remain a major constraint. Nigeria’s fiscal challenge is clear: it must raise more revenue without undermining the predictability and trust needed to sustain it over time.

The Hidden GDP Tax — Insecurity’s Economic Cost

The Institute for Economics and Peace (IEP) calculated that insecurity cost Nigeria roughly 8% of GDP in 2021 alone. Agriculture, which accounts for more than 25% of GDP and employs over 60% of the workforce, is the worst-affected sector. Food production in Zamfara and neighbouring northwest states fell by over 40% due to banditry and cattle rustling.

In 2024’s flooding season alone, cereal crop losses in affected northern states amounted to an estimated $1 billion in economic losses, on top of the violence-driven baseline. The geographic distribution of violence is important because each zone has a distinct economic mechanism.

In the northeast, Boko Haram and ISWAP continue to operate, disrupting trade routes and preventing humanitarian access. In the northwest and north-central regions, banditry and mass kidnapping have become entrenched.

According to SBM Intelligence, 2,371 people were kidnapped in the first half of 2021, an average of 13 per day. By 2024, the pace had surged significantly. Between July 2024 and June 2025, SBM Intelligence reported 4,722 abductions with total ransoms totalling over ₦2.57 billion.

A separate NBS estimate from the Crime Experience and Security Perception Survey puts total ransom payments for the period from May 2023 to April 2024 at ₦2.23 trillion. In the southeast, sit-at-home orders linked to separatist agitation shut down economic activity weekly.

In the Niger Delta, oil theft and pipeline vandalism drain billions in upstream revenue, the very revenue that underpins the fiscal system.

These are not isolated security events. They are economic shocks with compounding effects: farmers who cannot reach their land drive up food inflation; kidnapping ransoms drain household savings and small-business capital; road insecurity raises logistics costs for every manufactured and agricultural good; the security risk premium embedded in investment decisions keeps FDI structurally low.

The 2027 Election Horizon — A Known Risk

The IMF’s 2025 Article IV report highlights a key political risk: halfway through its term, the Tinubu administration is facing pushback on some reforms and is now focusing more on growth as the 2027 elections approach. This matters because reforms in Nigeria often become harder to sustain as elections approach. Government spending can rise, tough decisions can be delayed, and difficult reforms can be softened. The main risk is not that the reform agenda is being cancelled. The risk is that reforms become slower, weaker or more selective as the 2027 elections approach.

The reforms from 2023 to 2025 have already imposed real costs on households and businesses, while the benefits remain gradual and uneven. For investors and households, the key question is whether the government can maintain the credibility of its reforms while also responding to rising living costs and election pressure.