IMF, economists disagree over Nigeria’s economic prescriptions
By Emeka Anaeto, Business Editor
Nigeria’s leading economists and financial experts have disagreed with some of the latest policy prescriptions by the International Monetary Fund, IMF, for Nigeria, even as they endorsed the Fund’s warning against the Federal Government’s proposed $5 billion loan from a bank in Abu Dhabi.
Highlights of the IMF positions contained in its 2026 Article IV Mission Concluding Statement include a warning against the plan of the Federal Government (FG) to borrow $5b from First Abu Dhabi Bank of United Arab Emirate (UAE) saying that it comes at a dangerous collateral amounting 133.3% of the loan.
Other high points of the IMF statement include that Nigeria should raise its VAT rate because it is still low compared to other countries within the region; CBN should continue monetary tightening since inflationary pressures have returned; CBN should guard against excessive reliance on portfolio investments; FG should step up funding cash transfers program as poverty rate is increasing; Inflation is going to moderate in the second half of this year; reforms have strengthened macroeconomic stability; FG’s budgetary spending should be more transparent; and FG’s 2026 deficit to be around 4.4% of 2025 GDP.
The Federal Government has described the IMF statement on Nigeria as a validation of its economic reform programme, with the Minister of Finance and Coordinating Minister of the Economy, Mr. Taiwo Oyedele, stating, “The report provides further independent validation that the bold and necessary reforms undertaken under the leadership of President Bola Ahmed Tinubu, are strengthening macroeconomic stability, restoring confidence, and laying the foundation for sustainable and inclusive growth.”
Concerns over borrowing justified – Muda Yusuf
The Chief Executive officer of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, has backed IMF’s concerns over Nigeria’s proposed $5 billion borrowing from First Abu Dhabi Bank, stressing the need for greater caution in the country’s debt accumulation strategy.
Commenting on the IMF’s Article IV report Yusuf said he strongly agreed with the Fund’s emphasis on debt sustainability and prudent fiscal management, noting that the country’s growing debt-service burden remains a major source of concern.
According to him, while Nigeria’s debt-to-GDP ratio may appear relatively moderate, the more critical issue is the proportion of public revenue being committed to debt servicing.
“A substantial share of public revenue is now devoted to debt-service obligations, leaving less fiscal space for infrastructure, healthcare, education, security and other growth-enhancing investments,” he said.
Yusuf noted that fiscal sustainability should not be measured solely by the size of public debt but by the government’s capacity to service such obligations without undermining critical development priorities.
He therefore shared IMF’s reservations about the proposed $5 billion facility from First Abu Dhabi Bank, urging the government to carefully assess the cost, tenor, repayment terms, currency risks and developmental impact of the loan before proceeding.
According to the CPPE boss, Nigeria should prioritise affordable and concessional financing while ensuring that any new borrowing is channelled into productive investments capable of generating economic returns, boosting exports and strengthening future revenue streams.
“Borrowing should support growth, not merely increase future debt-service pressures,” he stated.
Yusuf also called for a more balanced policy mix, arguing that while tight monetary policy has contributed to exchange-rate stability and inflation moderation, elevated interest rates are constraining investment, business expansion and job creation.
Also commenting on the IMF’s position, Head of Equity Research at Quest Merchant Bank, Mr. Tunde Abidoye, supported the Fund’s reservations on the proposed UAE loan, describing the transaction as risky.
According to him, the loan is structured as a total return swap, a derivative instrument that exposes the country to significant volatility.
“The IMF is right on this. Since the loan is essentially a derivative, it entails significant volatility which could crystallise through margin calls in the event of adverse shocks such as a sharp drop in oil prices. While it provides immediate liquidity, the risks are substantial,” he said.
Also commenting, Chief Economist at United Capital Plc, Mr. Ayodele Akinwunmi, took a different position on external borrowing, saying foreign loans could be beneficial if deployed to productive infrastructure projects.
“Nigeria’s current macroeconomic environment presents a compelling case for external borrowing, provided such funds are channelled into infrastructure development. Expectations of a stable naira, relatively lower international interest rates and concessionary loan terms make external financing attractive at this time,” he said.
Commenting on the counsel by the IMF against borrowing, David Adonri, Analyst and Executive Vice Chairman at High Cap Securities Limited, said: “IMF’s counsel to FGN against borrowing whether from Abu Dhabi or any other foreign country is reasonable. However, I doubt if FGN will heed the advice because being in debt trap, FGN requires new foreign debt to service existing obligations. Otherwise, a sovereign default with dire consequences may become imminent.”
VAT increase
On the IMF’s recommendation for a VAT increase, Abidoye disagreed, arguing that Nigerians have already borne the burden of recent reforms.
“VAT provides an easy avenue for governments, particularly sub-national governments, to increase revenue. However, Nigerians have absorbed significant reform-induced pressures over the past three years. I do not think the timing is right for a VAT increase,” he stated.
However, Akinwunmi joined Abidoye in rejecting the IMF’s call for a VAT increase.
“What Nigeria needs is not higher tax rates but broader tax compliance. Expanding the number of individuals and institutions paying taxes will strengthen government revenue without stifling growth,” he stated.
On the recommendation given by the IMF to raise VAT, Adonri said: “IMF’s advice to FGN to raise VAT in order to equalize with neighboring countries is unacceptable. The reason is too pedestrian. Taxation is a serious fiscal tool aimed at specific strategic imperatives of the economy. VAT is a consumption levy that can worsen the poverty level of consumers. This is the time for relief and not extra burden.
Monetary tightening, inflation
On monetary policy stance Abidoye argued that although inflationary pressures may eventually compel the Central Bank of Nigeria, CBN, to tighten monetary policy further, an immediate rate hike may not be necessary.
“The current inflationary pressure is largely driven by supply-side energy shocks. Monetary policy can do little to address first-round effects. Central banks usually respond after a few months to contain second-round effects,” he explained.
On monetary policy, Akinwunmi said the current stance of the CBN remains appropriate, warning that additional rate hikes could undermine economic growth.
According to him, inflation is likely to remain in double digits in the second half of the year due to elevated oil prices, election-related spending and persistent security challenges.
He said: “The Central Bank is unlikely to lower rates hastily because inflationary pressures remain significant. However, raising rates further may be counterproductive under present conditions.”
On monetary policy tightening, Adonri said: “The IMF recommendation is justifiable. CBN loosened monetary policy prematurely because the policy objective of forcing inflation rate to single digit had not been achieved when money supply was increased.”
Speaking on inflation Adonri said: “Official figures indicate that inflation is moderating and will continue into the future but the reality on ground shows otherwise. Macroeconomic reforms have stabilized the demand side of the economy as they were majorly demand management policies but the structural reforms necessary to propel the supply side are yet to be forcefully embarked upon. The most critical element which is restoration of national security is callously treated with levity. Instead of focusing on foundational production infrastructure, fiscal policy is centered on secondary infrastructure. As a result, the economy remains heavily import dependent and unable to generate productive employment.”
Dependence on FPIs
Both Abioye and Akinwunmi agreed with the IMF’s position that Nigeria should reduce excessive dependence on Foreign Portfolio Investment (FPI) and attract more productive Foreign Direct Investment (FDIs) capable of supporting long-term economic growth.
While supporting social intervention programmes, they stressed the need for effective targeting and complementary investments in skills acquisition to create sustainable livelihoods for vulnerable Nigerians.
Their views came as the IMF maintained that Nigeria’s economic reforms have strengthened macroeconomic stability and projected that inflation would moderate in the second half of the year despite persisting pressures.
Commenting on FPI, Adonri said: “Portfolio Investment is hot money which is very volatile. What the economy needs now is patient capital (FDI) to boost the supply side of the economy.”
Babajide Komolafe, Peter Egwuatu and Yinka Kolawole contributed to this report
The post IMF, economists disagree over Nigeria’s economic prescriptions appeared first on Vanguard News.