Zero Equilibrium 2025 Nigerian Economic Review and 2026 Economic Outlook

By Chinedu Okoye 

1.0 Overview:

In the first three quarters of the year, Nigeria experienced an average of 3.8%, with forecasts for full year FY 2025 in the 3.9%-4.1. However, for this to happen, Q4 GDP needs to be at or above 4%. In the same vien, debt to Revenue has surged against with debt servicing gulping 80% of government revenue.

This creates a fiscal burden should revenue not increase sufficiently. Though non-oil revenue was met, Oil revenue budgeted, lagged, in volume and in price.

We look at the uneven growth rate per industry, and the contribution to overall output GDP, fiscal ratios, to ascertain the country's fiscal health, inflation, exchange rate prospects and demand management polices.

1.01 Sectoral Breakdown;

 Contribution      | Output y-o-y %∆

Q1:

Services   57.5% | +4.33%

Agro          23.4% | 0.07%

Industry       20% | +3.42%

Q2:    Contribution | y-o-y %∆

Non-oil:  95.95%  | +3.64

Oil:                  4%. | +20.46

Services:  56.5%. | +3.94%

Industry:   17.3%. | +7.45

Agriculture:  18% | +2.82%

Q3:

Services      53% | 4.15%

Agriculture  31%. | 3.79%

Oil                4.05%

From the above it can be seen that the marginal growth is a function of the growth of key sectors.

With each sector posting less than 4% gains. Save for services which gre +3.98% and 4.15% in Q2 and Q3 – the largest contributors. Agriculture also tcked off, from it's 0.07% increase in Q1 to 3.7% in Q3. And this is a key concern at the ZE Camp for it has a direct impact on household inflation. There was a slight shrink in it's share of GDP to 3.44% from 3.79% in Q2.

The above is consistent with the disinflationary trend the economy has been on thus far.

However a big worry for output growth is; i) uneven distribution, ii) low oil production, tighter fiscal burden as revenue target miss by over 70% in September.

1.1 Debt/Revenue Ratio:

Debt-to-Revenue ratio increased to 84% in October signalling possible strain on public financing. And in the absence of a higher NON-OIL revenue, the economy goes back to becoming extremely leveraged.

Inflation CPI from February to October month -on-month.:

2.0 Demand Management Policies:

2.1 Fiscal Policy:

Despite the fiscal space created with the dual subsidy removal; Subsidy removal, electricity subsidy reduction, the budgetary performance which determines fiscal policy efficacy, and expenditure execution fall behind.

As a resultz the country is over paying for it's debt. This is as there are high debt interest servicing costs, heavy recurrent expenditure, a narrow source of income, and structural constraints.

2.11 Some Positive Plays;

The Federal government has managed to source most of its debt in short to medium local denominated debt. Leveraging I'm it's lol resources for.much needed currency support loans to Afrexim.bank, a move that the oil price for the period of the dnr was earmarked for $65/pb. Since Brent has been below $64 for minths, an with months to come, it would see in hindsight a fantastic piece of financial engineering.

A mixture of local denominated bonds, concessional world bank loans sukuk bonds etc to finance expenditures have been issued, making the debt burden somewhatbeaier to bear. However beyond this financial engineering and deep subsidy cuts nothing much has been done in the way of promoting industrial development both local and foreign.

3.0 The Necessity for Fiscal Policy Innovation and Budgetary Overhaul:

In order for the fiscal policy to be effective, one has to tailor the policy prescriptions an compositions, according to the needs, priorities and realities of the economy.

On a broadscale Zero Equilibrium posits that th government needs to overhaul it's budgetary allocation, create fiscal spcae and;

 - present and work with modest and more realistic models,

 - use oil resource revenue or a PPP arrangement to explore and process non oil materials the country so happens to be endowed in;

 - adequate SME support,

3.10 Revenue Miss:

The 70%+ revenue miss and the large crude productioniss on volume and targets begs for a more cautious to, seen as the budget is overcrowded with dent obligations, and there's a limit to which one could raise taxes, non-oil revenue become a viable project, or support policies for strategic industrial players.

On that note, a 1.4mbpd, and a N25 trillion revenue target would seem prudent and realistic. This sets the finance Ministry on a clear path to funding the deficits

3.20 Monetary Policy:

This far the Cardoso led CBN has been disciplined and data driven, albeit a little bit oo tight and conventional on interest rate policy and reserve requirements. With the Apex bank holding CRR at 45% at MPR at 27% signals plans for a gradual easing, one that is insulated by the low money multiplier - cash reserve ratio.

ZE position on monetary policy differs slightly from the MPC, as we believe rates should be held as steady as possible, (say a maximum of 50bps cuts in the coming year, whilst slashing Cash Reserve Ratio gradually to the 35% level, thereby increasing the money multiplier - that is how much money banks and other FIs can create with their reserves.

3.30 Naira:

The NGN/USD has been strengthening for almost over 3 months now, breaching the N1,500/$1 and vein at the mid Ni1400/$1 levels. In the same being, gross and net foreign reserves have seen decent increase with gross hitting about $46 billion and the CBN Chief Yemi Cardoso targets a $50+ billion foreign reserve in 2026.

Should the reserves grow to reach that point, the Naira could hold within the N1465-1435/$1 range.

ZE 2025 Review Remarks:

4.0 Structural Headwinds and Monetary Policy Limitations:

The Nigerian economy, at first glance looks stable and resilient, however, when you dig into the detail, you find an economy that is solvent, but falry stagnant with regards growth. The output gap caused by the infrastructural deficit and inefficient spending, still remains large, even in the strategic Oil and Gas industry.

No long-term solution has been proffered or implemented, to alleviate pressures and support businesses. Especially agriculture, with import substitution for the recent, and late enacted policy dropping tariffs for select good and drug items. The effect though has been agricultural entrepreneurs (farmers) losing out

The main reason for the revenue miss was the abysymal and less than expected price and production volume reduction. As it stands there hasn't been a definitive move degrading and preventing oil threft, so the 1.61mbpd feels illusory, as does the N35 trillion revenue target, given that only about 10.7 trillion Naira was realized in 2025, a big miss to the projected 40 trillion in the budget.

Because structural issues plaguing industry hasn't been dealt with, monetary policy would have little or no bearing, save for stabilizing exchange rate risks and passthrough to inflation.

To achieve sustained fiscal deficit spending in the attempt to enhance growth, there needs to be a spark that ingnites industrial development from.both foreign and local investors in various industries.

The non-oil sector–specifically the manufacturing, industry and Agriculture – would need to see more growth, if the country is to reach the 4.49% projected FY GDP growth per Central Bank of Nigeria.

Despite Al the plagues though, the economy remains resilient growing at a steady pace (3-4% range).

5.0 Zero Equilibrium 2026 Economic Outlook:

Given the above explanations of right fiscal space, overreliance on debt and tepid growth, with key sectors growing only marginally, the outlook for the economy in 2026 would be focused on analysing this challenge, inorder to achieve sustainable government spending. And projections based on independent ZE broad or macro scale view.

5.1 GDP: 

As stated in the previous section above, even though Nigeria is able to meet her oil production targets, the overall output won't grow as much, if at all, as there's are standing liabilities on crude and oil prices stats under pressure. As a result, absent sufficient debt issuances to cover the deficit - which would be costly - the country's public finances remain weak and shaky.

This creates problems as budgetary performance dwindles in the face of scarce liquidity.

Fiscal Health: The federal government debt to revenue ratio at about 84%, after a prior reducton to 68%, signals the dependency of the economy on Short-term foreign exchange inflows, and these hapend to be costly.

5.2 Mixed Signals on Price Stability:

Although month-on-month CPI data has not been published comprehensively, available NBS permutations show that April recorded a 1.86% m-o-m increase, easing from the stronger March numbers, the seemed to be indicative of an early moderation in sequential price pressures.

Later in the year, as additional monthly data became available, headline m-o-m CPI growth slowed to 0.74% in August and 0.72% in September, adding impetus to the sustained deceleration in inflation in the short-term. 

However the November 0.95% m-o-m CPI increase signals sequential acceleration, despite the continuous decline in year-on-year figures. This divergence is why ZE prioritizes m-o-m inflation, in our price level and policy analysis.

Save for any unforseen sharp devaluation of the Naira, the disinflationary gain on headline Inflation is expected to continue. However, for business stability and consumer semtiment, there needs to be a significant growth in; Agriculture, Industry, Manufacturing (this is besides the obvious Oil sector).

The tentative growth of 3%+ in Agriculture, is only positive statistically, as many farmers were pushed out of business and made losses. Also, the sector is rising from a really low base, so double digit growth becomes imperative.

A failure to rectify this would present another economic headwind.

Since nothing has been done in order to suggest the growth of these three key sectors, not much growth can be actualized in the coming year (2026) with or without a looser or accommodative monetary policy.

6.0 ZE Economic Indicator Projections:

6.1 GDP: is projected, in the ZE Camp to grow at 4.1% in 2026. This is owing to the lingering problems facing government and businesses alike. Also, though inflation could moderate and slow down considerably, the effect will not be directly felt by consumers, as real average and minimum wages.

There would be no consumption demand increase in that scenario until wages catch up. Producers reliant on interest rates and imported component or finished goods,would be the direct beneficiaries. Stable prices and.lower rates enable planning and increases confidence.

6.2 Inflation: The Central bank predicts a 12.4% annual average inflation, signalling expectations of further momentum and continuance in the pace of the price deceleration. However at ZE, because of the Naira depreciation case, we forecast inflation at 14.25% on an annualized average.

6.3 Naira:

In September, Zero Equilibrium presented a 12-month Outlook that would see the best case scenario at N1400/$ levels, the base case at N1500-1600/$1, and the worst case scenario between N1650+1700/$.

We expect a return back to the N1,500 levels. Should this happen, then we could see negative inflationary effects. However with reserves at $45.5 billion, and projected to hit $51 billion in 2026, the Naira could hold these gains considerable amount of time. 

7.0 Bottom Line: 2025–2026 in the ZE Perspective:

This year has been one of strengthening and building on macro stability gans, whilst managing demands and expectations.of the masses. A fairly successful venture as inflation continues to decelerate and the FX market unified, normalized, and make easy to acquire.

In 2026 the plan should be to build on this foundation with stronger growth, meaningful inflation tempering, and bolstered foreign reserves, provided that fiscal reforms stick and structural weaknesses are addressed. Failure to make these policies work, would lead to a gross miss in economic growth projected (see above)

Nigeria is currently in a transition phase: shedding crisis-mode economics toward a more sustainable growth model.

On the surface, the trend looks positive, but real gains for households are yet to pick up, and for it

this to happen; demand policy consistency, public investment in human capital and infrastructure, and effective management of security and agricultural productivity.