The International Monetary Fund (IMF) has warned Nigeria against delays in budget approval and the continuation of overlapping fiscal cycles, citing risks to fiscal transparency and implementation. In its latest Article IV consultation report, the IMF stated that timely passage of budgets and ending overlapping fiscal years would improve expenditure execution and strengthen macroeconomic management. The 2026 federal budget, signed in mid-April, is being implemented alongside an extension of the 2025 budget until September 2026, creating a fiscal overlap. The Fund estimates the 2026 budget will widen the federal government's fiscal deficit to 4.4 percent of GDP, up from 3.5 percent in 2025.
The IMF described the 2026 spending plan as expansionary, driven by increased capital expenditure and the formal inclusion of previously off-budget national priority projects. Revenue projections rely on higher oil receipts, including gains from reforms limiting deductions by the Nigerian National Petroleum Company Ltd (NNPCL) before Federation Account remittances. However, the Fund cautioned that recent tax law changes might reduce near-term revenue and that administrative improvements could take time to yield results. The financing strategy for the budget involves increased external borrowing, with nominal borrowing limits doubled compared to 2025. A proposed $5 billion total return swap with First Abuja Dhabi Bank requires significant collateral in domestic securities and could expose the government to margin calls if naira-denominated assets lose value.
The IMF warned such arrangements may constrain monetary and exchange-rate policy and complicate public debt management. It welcomed recent transparency reforms, including direct remittance of hydrocarbon revenues to the Federation Account and the integration of off-budget items into the formal budget. The Fund called for stronger fiscal governance, particularly in monitoring risks from state-owned enterprises and oil-backed loans. It also stressed the need for sustained revenue mobilisation, suggesting future measures to broaden the tax base and raise VAT. Nigerian authorities contested some IMF revenue assumptions, arguing gains from ongoing reforms will exceed projections. They defended the use of counter-cyclical policies to shield the economy from global shocks and reaffirmed their commitment to maintaining fuel subsidy reforms.
The government is extending the 2025 budget into 2026 while launching a new deficit-widening spending plan, yet insists reforms will generate higher revenue than the IMF believes possible. This mismatch between fiscal ambition and revenue expectations creates uncertainty for public spending commitments. Nigerians named in the budget as beneficiaries of social protection and capital projects may face delays if revenue falls short. The $5 billion swap deal, requiring domestic securities as collateral, could also limit funds available for other critical expenditures.
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