Nigeria’s Heavy Reliance On Oil Remains Major Economic Weakness, IMF Warns

Washington, DC – The International Monetary Fund (IMF) has again warned that Nigeria’s overdependence on oil remains one of the biggest structural weaknesses of its economy, urging the government to intensify efforts toward diversification, fiscal reforms, and more sustainable revenue mobilization.

The Director of the African Department in the IMF, Abebe Selassie, who spoke during a press conference on the regional economic outlook for Sub-Saharan Africa at the 2025 Annual Meetings of the IMF and World Bank said that while Nigeria has made notable progress in policy reforms, the country’s economic fundamentals remain highly vulnerable to fluctuations in global oil prices.

Selassie said, “Perhaps the most overriding challenge that the country faces is extreme reliance on oil. Oil resources have been problematic for Nigeria, as you know. Many ministers, including Minister Wale Edun, have emphasized this for years. I think the focus that the government has put in place in recent years is the right one, but there’s still a lot more to do.”

Selassie commended the Nigerian government for its recent policy moves, particularly on the monetary front, saying that the reforms undertaken over the past year are beginning to reflect positively in the economy.

He, however, stressed that further policy calibration and discipline are needed to achieve the government’s inflation and growth targets.

“We’re encouraged by the policy actions that have taken place over the last year or so,” he said. “They are consistent with the policy calibration we see as necessary. But there’s still some way to go to get to the government’s targets.”

Selassie noted that while inflation has begun to slow in Nigeria and other parts of the region, the cost-of-living crisis continues to exert pressure on households, especially those with limited income and savings capacity.

He said, “To be very clear, what is being reported is that the rate at which prices are increasing is slowing down, but there’s been a level shift in the overall price level

“This cost-of-living crisis has hit our people far harder than others, given their limited capacity to withstand these shocks.”

He cautioned against complacency, warning that inflationary pressures, high living costs, and currency volatility continue to weigh heavily on economic recovery and consumer confidence.

Turning to public debt, he expressed concern over the rising debt burdens across Africa, including Nigeria, stressing that many countries in the region are either at high risk of, or already experiencing, debt distress.

He warned that about 20 countries on the continent are either at high risk of, or already facing debt distress.

He said the high debt levels, coupled with persistent inflation and weak revenue mobilization, pose significant threats to economic stability and growth prospects in the region.

According to him, 14 African countries are currently classified as being at high risk of debt distress, while six others are already in debt distress, underscoring the urgent need for fiscal reforms and stronger economic management frameworks.

He said, “Public debt is high, of course, in many countries in the regionnothe noted. “We estimate about 20 countries to be in situations of high risk or in actual debt distress. That’s one metric of debt vulnerabilities, but other indicators also show that public debt burdens are high.”

The IMF said that while efforts to stabilize monetary policy and control inflation are beginning to yield some positive results, many African economies continue to grapple with the effects of multiple global shocks, including the lingering impact of the COVID-19 pandemic, disruptions from geopolitical tensions, and climate-related fiscal pressures.

Selassie stressed that one of the most important measures to reduce debt vulnerability is to stimulate sustained and inclusive economic growth, supported by comprehensive fiscal reforms.

He emphasized that higher growth would help countries make debt servicing more affordable, while fiscal adjustments could strengthen public finances and enhance investor confidence.

“Reforms are needed, first and foremost to put in place higher economic growth. That’s an important input that contributes to making debt servicing affordable. Beyond that, in many countries, there’s a need to do some fiscal reforms,” he added.

He also highlighted that many governments have made heavy investments in recent years in infrastructure, health, and education but have not adequately captured the returns from these investments due to weaknesses in domestic revenue systems.

He noted that one key challenge is low tax efficiency, which limits governments’ ability to mobilize domestic resources to finance development.

“Perhaps one area where we have not done as well is capturing the rate of return on all of these investments through the tax system,” he explained.

He added, “We see scope for revenue mobilization, but this must go hand in hand with showing that the money collected is being used for the right purposes.”

The Fund urged African governments to build greater public trust by ensuring transparency, accountability, and efficiency in the use of public resources.

Many citizens, Selassie noted, perceived tax levels as high because they do not see corresponding improvements in infrastructure and basic services.

The IMF also identified illicit financial flows, corruption, and trade leakages as critical issues undermining fiscal stability and sustainable growth across the continent.

It called for coordinated reforms and stronger enforcement to curb the diversion of resources that could otherwise support development.

He said, “Illicit financial flows take many forms from trade leakages and tax evasion to outright corruption. The way to tackle this is to identify the sources and address them through targeted reforms.”

While noting that inflation rates are beginning to decelerate in some economies, the IMF cautioned that the cost-of-living crisis continues to weigh heavily on households, especially in low-income countries with limited social safety nets.

“We’re encouraged that the rate at which prices are increasing is slowing down,” he added. “But there has been a level shift in inflation, and this has hit our people much harder than others, given their limited capacity to withstand such shocks.”

On outlook and policy direction, the IMF said it remains committed to working with African governments on country-specific programs aimed at restoring macroeconomic stability, improving debt sustainability, and creating an enabling environment for private sector growth.

“The direction of travel is clear. We must combine growth-oriented policies with transparent and accountable governance to restore debt sustainability and strengthen resilience,” he added.

Selassie emphasized that African countries, including Nigeria, must expand their non-oil revenue base to ensure debt sustainability and fund critical investments in health, education, and infrastructure.

“Many of our countries have invested quite a lot in infrastructure and public services in recent years,” he said. “But one area where we have not done as well is capturing the rate of return on these investments through the tax system.”

He added that while there is scope for increased revenue mobilization, governments must also ensure that public funds are used efficiently and transparently.

“Revenue mobilization must go hand in hand with showing that the money being collected is used for the right purposes,” he said. “People consider tax levels high when they don’t see enough infrastructure or social services. Minimizing leakages and corruption must be part and parcel of this effort.”