As oil revenues stumble and global uncertainties mount, Nigeria looks to tax reforms, digital innovation, and investor confidence to stabilize growth.
As Nigeria steps into the second half of 2025, the nation finds itself at a pivotal economic juncture. According to the latest macroeconomic update by FSDH titled “Balancing on the Edge in a Fragile World,” the outlook for H2 2025 is marked by volatility but also significant opportunities, if policymakers can balance competing pressures at home and abroad.
Global Disruptions: Tariffs, Conflict, and Slowdowns
Two major international developments are weighing heavily on emerging economies like Nigeria. First is the return of Donald Trump to the U.S. presidency, bringing with him broad-based 10% import tariffs and additional levies on select countries, rekindling global trade tensions. Second is the escalating Israel-Iran conflict, which has disrupted oil supply chains, increased freight costs, and triggered commodity price instability.
As a result, the IMF has slashed its 2025 global GDP growth projection to 2.8%, down from 3.3%. Sub-Saharan Africa’s outlook remains slightly brighter at 3.8%, driven by structural reforms and improved exports, but the region continues to be highly vulnerable to external shocks, especially in energy and capital markets.
Nigeria’s Domestic Challenges: Budget Assumptions vs Reality
Despite efforts to diversify its economy, Nigeria remains heavily dependent on oil revenues. The ₦54.99 trillion 2025 federal budget was predicated on an oil benchmark of US$75 per barrel and a daily production target of 2.06 million barrels. However, H1 performance missed the mark: oil averaged US$72 per barrel, and output consistently fell short. This shortfall has widened the fiscal gap and raised doubts over the government’s ₦35 trillion revenue target.
Glimmers of Hope: Inflation Tapers, PMI Expands
Amid the challenges, some economic indicators offer cautious optimism. Nigeria’s Purchasing Managers’ Index (PMI) remained above the 50-point threshold between January and May 2025, signaling expansion across agriculture, industry, and services.
Inflation, while still high, is on a downward trend, falling from 24.5% in January to 23% by May 2025. This decline is attributed to improved food supply chains, relative exchange rate stability, and revised statistical methodologies from the National Bureau of Statistics (NBS).
Exchange Rate: Stable for Now, But Risks Linger
The Naira closed H1 2025 at ₦1,539/USD, reflecting only a marginal 0.2% depreciation since January. The “willing buyer, willing seller” FX policy has improved market transparency, yet external reserves dipped by 8.5%, from US$40.9 billion to US$37.3 billion, due to rising imports and external debt repayments.
FSDH warns that future stability will depend on sustained FX inflows, investor confidence, and fiscal discipline. Oil prices hovering between US$75–US$78 per barrel may help, but risks remain especially if global trade deteriorates or oil production falters.
Game-Changing Reforms: Tax Overhaul Under Tinubu
June 2025 marked a critical turning point with President Tinubu’s signing of four landmark tax reform bills:
- Nigeria Tax Act
- Nigeria Tax Administration Act
- Joint Revenue Board Act
- Nigeria Revenue Service Act
The reforms aim to harmonize tax processes, reduce bureaucratic overlap, and empower a new national tax authority. Key provisions include:
- Raising Capital Gains Tax for corporates from 10% to 30%
- Introducing a Development Levy on large corporations
- Zero-rating VAT on essential goods
- Exempting small businesses earning below ₦100 million from tax filing
The government targets an increase in the tax-to-GDP ratio from 10% to 18% within three years, though implementation challenges at the state and local level remain a concern.
Market Momentum: Investor Confidence on the Rise
The Nigerian Exchange (NGX) delivered a 16.6% return year-to-date by June 2025, outperforming several global indices. Gains were driven by robust corporate earnings in the banking and consumer goods sectors, aided by supportive reforms.
Foreign Portfolio Investment (FPI) also rebounded significantly, US$5.46 billion flowed into Nigeria in Q1 2025, up 67% from Q4 2024. This surge reflects improved FX transparency, positive real interest rates, and more predictable policymaking. Still, the risk of rapid “hot money” outflows underscores the need for deeper, more resilient long-term capital inflows.
Strategic Priorities for H2 2025
FSDH outlines four key imperatives for Nigeria’s economic stability in the coming months:
- Boost oil production to meet revenue benchmarks and strengthen export earnings.
- Diversify foreign exchange sources through non-oil exports—particularly in agriculture and manufacturing.
- Ease liquidity constraints by reducing the high Cash Reserve Ratio (CRR) to unlock private sector credit.
- Maximize tax reforms at the subnational level to improve ease of doing business and grow internal revenues.
Additionally, FSDH emphasizes the role of the digital economy and fintech innovation. The expansion of open banking, AI integration, and digital payments is reshaping Nigeria’s financial landscape. Institutions that embrace digital transformation will lead in customer growth, operational efficiency, and resilience.
The Bottom Line: Fragile Stability, But Clear Path Forward
Despite global uncertainties from oil shocks to geopolitical risk and trade disruption, FSDH believes Nigeria is on a slow but steady path toward stabilization.
Inflation is expected to continue its downward trend, which may open the door to monetary easing in late 2025. The Naira is projected to stay relatively stable, and GDP growth will likely be modest, driven by agriculture, services, and increasing investor activity.
Yet, the key to success lies in effective policy execution, fiscal discipline, and institutional accountability. The second half of the year will test Nigeria’s political will and economic agility.
As FSDH aptly concludes, “Resilience is not just about surviving the storm, it’s about building structures that thrive within it.”
Nigeria has a chance to do just that in H2 2025.
