Economic growth in Nigeria slowed from 3.3% in 2022 to 2.9% in 2023 due to high inflation and sluggish growth in the global economy, which declined from 3.5% in 2022 to 3.2% in 2023. Growth was driven by services and agriculture on the supply side and by consumption and investment on the demand side. Inflation rose from 18.8% in 2022 to 24.5% in 2023, due to rising fuel costs and a depreciating naira. Petrol prices increased 167%, from naira 254 per liter in May 2023 to naira 671 in December 2023.
The exchange rate depreciated by 95.6% in 2023, resulting from the floating of the naira in June 2023. Monetary policy was tightened to control inflation, with the policy rate increased from 17.5% in January 2023 to 18.75% in December 2023. The fiscal deficit narrowed from 5.4% of GDP in 2022 to 5.1%, as general government revenues improved from 6.7% of GDP in 2022 to 7.6% in 2023, although remaining low. The deficit was financed mainly by domestic borrowing, including from the Central Bank’s Ways and Means. Public debt remained low at 40% of GDP in 2023, but the federal government debt service to revenue ratio was high, at 111%, due to weak revenues. The current account surplus improved from 0.2% of GDP in 2022 to 0.9% in 2023, driven by higher oil prices and exports. International reserves remained robust but dropped from 6.6 months of import cover in 2022 to 5 months in 2023, reflecting tight global financing conditions.
The poverty level remains high, with multidimensional poverty at 63% and income poverty at 40%. Income inequality is lower than in many middle-income countries, with a Gini coefficient of 0.35.
Outlook and risks
economic growth is projected to increase to 3.2% in 2024 and 3.4% in 2025, due to improved security, higher oil production, and stronger consumer demand. Inflation is expected to rise to 31.6% in 2024, driven by higher food prices and continued depreciation of the naira, before moderating to 20.7% in 2025 as inflationary pressures abate. The fiscal deficit, financed by domestic borrowing, is projected to narrow to 4.3% of GDP in 2024 and 4.1% in 2025 as both oil and nonoil revenues improve. The current account surplus is expected to improve to 3.0% of GDP in 2024 and 3.6% in 2025 due to higher oil exports. Headwinds include insecurity, lower oil production, rising fuel and food prices, and further exchange rate depreciation. Tailwinds include new oil production from the Dangote refinery, which is expected to lower energy prices as it starts supplying the local market.
Reform of the global financial architecture
Despite some evidence of structural transformation, reflected in agriculture employment’s falling share in total employment from 49.3% in 2000 to 35.2% in 2021, the pace of transformation is not sufficient to propel industrial take-off. Labor has relocated to the services sector, whose share of employment rose from 39.4% in 2000 to 52.1% in 2021. However, industry’s share of employment has increased only marginally over the past 20 years, from 11.3% to 12.7%, reflecting slow industrialization. Furthermore, wage employment is low, at 11.8%, reflecting low-quality jobs and characterized by high informality, at 92.6%.
To finance structural transformation, Nigeria needs to accelerate domestic resource mobilization, especially by reforming tax administration. The African Development Bank is supporting the introduction of an integrated unique identification system aimed at improving tax compliance. Nigeria also faces exorbitant financing costs in global financial markets, with its 30-year bond trading at a double-digit yield of 11.11% in January 2023 (and 10.58% in April 2024) compared with 8.25% at issue in 2021. Consequently, Nigeria was unable to mobilize f inancing from the eurobond market in 2023. As part of the reform of the global financial architecture, establishing an African Financial Stability Mechanism could help Nigeria access liquidity at a lower cost. Furthermore, multilateral development banks can reform their risk capital models to allow additional lending capacity to regional member countries, including through risk transfer and balance sheet optimization instruments.