In its latest report, Nigeria’s 2025 Budget and Economic Outlook: Key Issues, Opportunities, Risks, and Strategic Imperatives for Businesses and Economic Growth, PricewaterhouseCoopers (PwC) has provided a thorough examination of the country’s economic trajectory, highlighting significant hurdles and opportunities for growth.
The report, an expansive analysis of fiscal, monetary, and structural challenges, explores how Nigeria can leverage reforms to achieve sustainable economic stability. It underscores six major themes that encapsulate Nigeria’s economic condition and forecasts for the coming year: revenue generation, debt sustainability, inflation control, fiscal reforms, foreign exchange stability, and the need for comprehensive social protection programs.
Revenue Generation: Revenue generation remains a pivotal challenge for Nigeria, even as reforms have yielded notable progress in recent years. According to PwC, by August 2024, the Nigerian government had achieved 73.8% of its pro-rata revenue target for the year. This performance indicates some positive momentum but also exposes the significant hurdles that need to be overcome to meet the ambitious N36.35 trillion revenue target for 2025.
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A key driver of Nigeria’s revenue challenges is its dependence on oil revenue, a sector susceptible to fluctuating global prices and production shortfalls. Compounding the issue is the country’s low tax base, with a tax-to-GDP ratio of 6.1%, one of the lowest in the world.
“Government revenue is expected to grow in 2025 on the back of government reforms, however, achieving the ambitious target of N36.35 trillion will require significant effort,” the report says.
Efforts to enhance tax collection efficiency have shown promise, but the PwC report warns that these gains may fall short unless accompanied by aggressive policies aimed at formalizing the informal economy and addressing leakages in tax administration.
Debt Sustainability: The report raises alarms about Nigeria’s growing debt burden. By October 2024, the debt-to-GDP ratio stood at 50.7%, well above the 40% ceiling set in the nation’s debt management framework. Additionally, the 2025 budget deficit is projected to reach N13.8 trillion, or 3.87% of GDP, exceeding the 3% limit established under the Fiscal Responsibility Act of 2007.
The rise in the debt-to-GDP ratio, coupled with an increasing cost of debt servicing, highlights the unsustainable trajectory of Nigeria’s public finances. According to a PwC, “The 2025 budget adds N7.4 trillion in debt, with oversubscribed Eurobond issuance reflecting investor confidence. However, rising debt risks may reduce access to credit for private investment.”
The report also suggests that prioritizing concessional loans, increasing non-debt revenue, and implementing prudent fiscal policies will be essential to managing debt more sustainably.
Fiscal strategy and budgets: In an effort to mitigate the deficit and drive economic growth, the Nigerian government has adopted privatization and asset sales as key pillars of its 2025 fiscal strategy. By selling off underperforming assets and privatizing sectors that are ripe for efficiency gains, the government hopes to reduce its fiscal burden and enhance productivity in critical industries.
PwC acknowledges the potential benefits of these measures but warns of execution risks, particularly around transparency and governance.
“Privatization and asset sales are central to reducing deficits and boosting non-debt revenue in 2025. The strategy aims to address fiscal imbalances but hinges on effective implementation to sustain economic stability,” it says.
It also stresses the importance of aligning privatization efforts with broader fiscal and economic objectives to avoid merely plugging budgetary holes at the expense of long-term value creation.
“Fiscal consolidation, along with privatization and sell-downs of underperforming assets, is expected to evolve as key strategies in Nigeria’s revenue generation plan in 2025,” it says. “This could reduce fiscal deficits and increase non-debt revenue, thereby enhancing economic stability and growth in 2025.”
Inflation: Inflation, a persistent thorn in Nigeria’s economic side, reached 34.8% in December 2024, driven largely by supply-side pressures such as high transportation costs, insecurity in food-producing regions, and global commodity price fluctuations. However, PwC projects inflation to ease to 26% by the end of 2025, aided by tighter monetary policy and agricultural reforms.
“Inflation is expected to remain elevated but decelerate marginally over the next 3 to 6 months driven by high energy prices, increase in transportation cost, and exchange rate pressures, among others,” it says.
The Central Bank of Nigeria (CBN) has maintained its monetary policy rate (MPR) at 27.5%, one of the highest globally, to combat inflation. While this approach has had a moderating effect, it has also constrained credit availability for businesses and households.
The PwC further notes that the Nigerian government’s planned expenditure increase to N49.7 trillion in 2025, along with the new minimum wage, is expected to fuel inflation. Consequently, the CBN may sustain a tight monetary policy to manage these inflationary pressures.
The report also highlights the impact of structural inefficiencies, particularly in agriculture, where weak supply chains and inadequate storage facilities continue to exacerbate food inflation.
“Structural issues in food production and supply chains, such as inefficiencies, disruptions, or lack of infrastructure, can significantly drive up food prices. This increase in food prices can contribute to overall inflation, affecting the cost of living and economic stability,” the report says.
Foreign Exchange Reforms: The naira faced substantial depreciation in 2024, losing 39.8% of its value in the official market. This depreciation, though painful, was a necessary outcome of reforms aimed at liberalizing the forex market. Nigeria’s external reserves stood at $38.67 billion by the end of 2024, providing a buffer against further exchange rate volatility.
PwC highlights five critical factors that will shape foreign exchange stability in 2025: market transparency, price discovery, liquidity, demand-supply dynamics, and investor confidence. The report notes that ongoing CBN reforms are expected to improve forex liquidity and attract foreign investment, although challenges remain.
Diaspora Remittances and Capital Inflows: Diaspora remittances, a crucial source of foreign exchange, surged to $4.22 billion between January and October 2024, nearly doubling the $2.62 billion recorded during the same period in 2023. This uptick reflects the positive impact of CBN reforms and improved economic conditions in key diaspora markets.
“This increase is projected to continue into 2025, driven by improved economic conditions in advanced economies,” PwC says.
Capital inflows also saw a mixed performance. While foreign portfolio investments (FPIs) increased by 152% to $2.6 billion in 2024, foreign direct investment (FDI) plummeted by 65%, underscoring the structural challenges facing Nigeria’s investment climate.
The report says: “The outlook for 2025 is cautiously optimistic for FDI, while FPIs are expected to continue growing, supported by favorable market conditions and ongoing economic reforms.”
The Rising Cost of Living and Poverty Levels
One of the most sobering aspects of PwC’s report is its assessment of poverty and income erosion. With inflation continuing to erode purchasing power, an additional 13 million Nigerians are projected to fall below the poverty line in 2025, pushing poverty levels to unprecedented heights.
The report criticizes the government’s social safety net programs for their limited impact, pointing out that the new minimum wage, while a step in the right direction, covers just 4.1% of the population.
“33.1 million Nigerians may become food insecure in 2025 due to economic hardship, high inflation and violence in Northern food producing regions,” the report says.
Economic Growth Prospects: PwC projects Nigeria’s GDP to grow by 3.3% in 2025, driven by reforms in non-oil sectors and improvements in macroeconomic stability. However, high inflation, fiscal deficits, and structural bottlenecks remain significant headwinds.
The report emphasizes the importance of translating economic reforms into tangible benefits for households and businesses. It also highlights the role of public-private partnerships in driving infrastructure development and job creation.
PwC’s report offers a nuanced view of Nigeria’s 2025 economic outlook, acknowledging the challenges ahead. While ongoing reforms present opportunities for growth, the report notes the need for bold and decisive actions to address fiscal imbalances, enhance revenue generation, and foster an inclusive economy.