The Nigerian economy is showing signs of stabilisation following reforms initiated in 2023, including fuel subsidy removal and exchange rate unification.
GDP is projected to increase by 4.2% in 2026, up from 3.9% in 2025. This is driven by higher oil production, lower inflation, and improved investor confidence.
However, the economy faces several risks this year, including oil price volatility, rising debt, persistent insecurity and pre-election pressures.
These challenges could reverse recent progress and push more Nigerians into multidimensional poverty.
1. Real Sector Output
Economic reforms are expected to boost productivity, stimulate private sector activity, and support a more competitive and diversified economy.
Cost-saving measures may increase unemployment, narrow the formal sector, and constrain growth.
In the event of unfavourable climatic conditions, the ensuing shocks may lead to the destruction of crops, disruption of businesses and transportation services, thereby dampening growth prospects in 2026.
In addition, negative shocks to crude oil production owing to unanticipated security breaches around oil installations could reduce expected crude oil output, thereby constraining growth.
2. Inflation
Unanticipated headwinds may reverse the expected inflation trajectory in 2026. In the global commodity market, higher prices may crystallise if geopolitical crises in some parts of Europe and the Middle East persist, thereby elevating domestic prices.
Rising protectionism may increase the cost of trade, exacerbate supply chain disruptions, and elevate domestic prices in importing countries. Higher-than-expected increases in pre-election spending and extra-budgetary outlays could pose a risk to the inflation outlook for 2026.
An unexpected rise in security challenges in food-producing regions and adverse weather conditions could impact food prices and undermine the projected disinflation. The CBN estimated average inflation rate for the year 2026 is 12.94%.
3. Financial Sector
The rising Non-performing Loans (NPLs) pose a direct threat to banks’ profitability, credit availability, and overall risk-bearing capacity.
This stresses the need to sustain measures to ensure that worsening NPLs do not weaken banks’ balance sheets, impair asset quality, and trigger systemic contagion.
Although recent gains in capital adequacy and liquidity ratios provide a buffer, these indicators remain susceptible to unforeseen macroeconomic shocks.
An increase in credit losses or foreign exchange illiquidity could erode capital reserves, breach prudential thresholds, and strain liquidity coverage.
These conditions could disrupt financial intermediation, diminish market confidence, and amplify vulnerabilities across the banking sector.
A sharp depreciation in the value of the naira, though unlikely, could impact banks’ balance sheets and liquidity positions, leading to a significant expansion in monetary aggregates and heightened inflation.
Despite the bullish momentum, the capital market could face higher concentration risk from the banking sector, as the ongoing recapitalisation could trigger investor fatigue and crowd out other issuers.
The high degree of interconnectedness among financial institutions creates a systemic susceptibility, where cyberattacks on systems propagate data breaches that compromise confidential information and erode public confidence in the financial system.
4. Fiscal Sector
The fiscal outlook for 2026 is vulnerable to various risk factors. Notably, a budget risk could crystallise if crude oil prices and domestic production fall below benchmarks, thereby dampening the optimism about oil revenue contribution (57.01%) to the total revenue outcome in 2026.
Although crude oil production is expected to ramp up in the near-term, the domestic oil sector remains sensitive to global shocks.
The expectation of a strong non-oil revenue performance in 2026 is hinged on the successful implementation of the Nigeria Tax Act, 2025, and the sustenance of the ongoing tax effort.
However, low tax awareness and compliance levels, as well as gaps in tax administration systems, remain significant risks to tax revenue projections.
In addition, the directive for Ministries, Departments, and Agencies (MDAs) and Government Owned Enterprises (GOEs) to remit a portion of their gross internally generated revenue to the Consolidated Revenue Fund (CRF) upfront has improved the non-oil revenue of the Nigerian government.
Nonetheless, fiscal revenue could be undermined by a weak public finance management system.
On the expenditure side, new spending needs and realignment of priorities may arise if delays in implementing capital budgets lead to cost overrun or if unanticipated exogenous shocks warrant unplanned fiscal spending.
This could further widen the fiscal deficit, necessitate new borrowing, and elevate debt servicing.
5. External Sector
The external sector remains vulnerable to escalating global trade frictions and geopolitical tensions, which could disrupt supply chains.
However, a potential increase in crude oil supply in 2026, as predicted by the International Energy Agency ( IEA), could exert downward pressure on crude oil prices, thereby reducing export receipts and weakening external sector performance.
Similarly, an unanticipated deterioration in global financial market conditions, resulting in sudden capital reversal, could re-ignite exchange rate volatility and exacerbate inflationary pressures.
On the domestic scene, an unlikely re-emergence of security challenges in oil-producing regions poses downside risks to crude oil production and export performance.
Such disruptions, while reducing export receipts, could also undermine investor confidence in the oil and gas sector.
6. Security Challenges
Nigeria’s insecurity challenges continue to erode economic potential, thereby disrupting the various sectors of the economy, including the agricultural sector, which employs about 70% of the nation’s workforce and deterring Foreign Direct Investment (FDI), which declined by 70% in early 2025.
Banditry in the northwest, insurgency in the northeast, violent agitation in the southeast, farmers-herders clashes in the north-central and the southwest, and oil theft in the south have displaced farmers, inflating food costs and stifling trade.
The Nigerian government has intensified military operations and proposed decentralised policing in recent months. They have also offered hope, but security experts like Muda Yusuf stressed that “insecurity limits revenue and growth in affected areas.”
In a pre-election year, heightened tensions could amplify these disruptions, threatening the projected 1.73 million bpd oil output and the general growth of the economy in 2026.
With the recent collaborations with the United States and the reported note-sharing measures with Türkiye, Nigerians expect the nation’s security challenges to be better managed this year.
Although with the mindless killings in Niger state, amongst others, so far this year, it seems to be business as usual.
7. Pre-Election Fiscal Risks
With general elections slated for 2027, 2026 risks a pre-election excessive spending spree. This could fuel inflation and exchange rate instability.
The regulators should enact policy measures to ensure periodic mopping up of excessive currency in circulation.
8. Escalating Debt Burden
Public debt sustainability emerges as a critical concern, with servicing costs projected to consume over N15 trillion, nearly 50% of anticipated revenues in the N58.18 trillion 2026 budget.
Nigeria’s debt stock has ballooned, and while a recent GDP rebasing lowered the debt-to-GDP ratio to about 30.7%, external obligations remain vulnerable to naira depreciation and global rate hikes.
S&P Global Ratings recently revised Nigeria’s outlook to positive but cautioned that high debt servicing exceeding revenues in some quarters crowds out investments in infrastructure and social services.
Revenue shortfalls, estimated at N30 trillion below target in 2025, stem from weak oil receipts and inefficient tax collection.
New tax laws aim to boost non-oil income, but implementation risks persist, potentially widening fiscal deficits to 4-5% of GDP.
