As Nigeria marches towards 2026, the macroeconomic outlook appears delicately poised between the gradual consolidation of recent structural reforms and the gravitational pull of the 2027 electoral cycle. Having weathered the “shock therapy” of petrol subsidy removal and foreign exchange unification in prior years, the economy now faces a pivotal test: can the institutionalisation of these market-liberalising policies withstand the exigencies of a pre-election political cycle and global commodity price uncertainty?

The Global Backdrop: Headwinds from Afar

The global operating environment in 2026 presents an array of “fault lines”, ranging from divergent economic growth paths to heightened geopolitical fragmentation, that threaten to undermine fragile recovery in frontier markets. Global GDP growth is projected to remain subdued, weighed down by the lingering effects of monetary tightening in advanced economies and structural deceleration in China. For Nigeria, the external temperature is set by three critical variables: the trajectory of global liquidity, trade fragmentation, and, crucially, the direction of commodity prices.

While the aggressive monetary tightening cycle may have concluded, the “higher-for-longer” interest rate environment in developed markets will keep the cost of external capital elevated, necessitating a pivot from volatile portfolio flows to stickier Foreign Direct Investment (FDI). Nigeria must compete for capital in an era where global investors are increasingly selective, favouring jurisdictions with clear policy frameworks and credible structural reforms. Of critical concern is the outlook for commodity markets. Energy prices remain the principal transmission mechanism of external shocks to the Nigerian economy. Forecasts suggests a bearish outlook for crude oil, with prices potentially testing the $50–$60 per barrel range in 2026, driven by non-OPEC supply expansion and tepid demand growth in Asia, leading to a build-up of global oil inventories at a faster pace than during the COVID-19 pandemic, creating a surplus of approximately 4 million barrels per day. For Nigeria, a high-cost producer with significant fiscal dependence on hydrocarbon revenues, a sustained dip in oil prices constitutes a severe terms-of-trade shock.

Figure 1: Crude Oil Price ($ per barrel)

Source: OPEC

The 2027 Shadow: Politics, Prudence and the Structural reform Trajectory

The overarching theme for Nigeria’s political economy in 2026 will undoubtedly be the looming 2027 general elections. Historically, the penultimate year of the electoral cycle has been associated with weakened fiscal discipline, delayed reforms, and the expansion of politically motivated spending. This cycle is unlikely to be an exception. Electioneering is expected to unleash substantial liquidity, potentially amounting to several trillion naira, into the economy, posing clear risks to inflation dynamics just as the effects of recent monetary tightening begin to materialise.

The central risk lies in fiscal dominance. Elevated election-related spending could undermine price stability, particularly if monetary policy accommodation is forced upon the Central Bank of Nigeria (CBN). Insecurity-linked disruptions, which often intensify during election periods, present an additional inflationary channel. Heightened tensions in food-producing regions and renewed risks in the Niger Delta could exacerbate food inflation and threaten the fragile recovery in oil production. Collectively, these factors are likely to widen Nigeria’s political risk premium in 2026, reinforcing investor sensitivity to institutional credibility and policy consistency.

That said, this electoral cycle differs materially from previous episodes. Structural reforms implemented since 2023, most notably the removal of fuel subsidies and the liberalisation of the foreign exchange market, have altered incentive structures within the political economy. These reforms have reduced the scope for rent-seeking through administered prices and arbitrage, making a full policy reversal both costly and operationally complex. The durability of these gains will depend largely on the independence and resolve of key institutions, particularly the CBN, in resisting fiscal pressure and maintaining a focus on price stability.

Beyond macro-stabilisation, 2026 will serve as a critical test of Nigeria’s broader reform trajectory. The operational ramp-up of the Dangote Refinery represents a structural hedge against external shocks, with the potential to reduce refined fuel imports, conserve foreign exchange, and support domestic industrial capacity. Further upside lies in capital market deepening, particularly if large-scale corporate listings materialise, most notably from the Dangote Refinery, which is currently valued in excess of $30 billion (and targeting a market capitalisation exceeding $200 billion). This could catalyse a tripling of the Nigerian Stock Exchange’s market capitalisation (₦95.2 trillion), potentially elevating it from roughly 25% to nearly 75% of GDP – (₦279.6 trillion), enhancing liquidity and investor participation.

The Fiscal Conundrum: Revenue Ambitions vs. Expenditure Realities

Nigeria’s fiscal outlook for 2026 reflects a cautious consolidation trajectory tempered by significant structural challenges and recent empirical disappointments. The federal government’s significant revenue underperformance in 2025, where projected revenues of approximately ₦40.8 trillion failed to materialise, with actual receipts likely to close near ₦10.7 trillion, reveals a ₦30 trillion shortfall that has materially stressed fiscal planning and heightened concerns about sustainability. This substantial divergence underscores persistent weaknesses in both oil and non-oil revenue mobilisation, particularly with collections from Petroleum Profit Tax and company levies underperforming. The shortfall has forced the government to borrow an estimated ₦14.1 trillion to bridge funding gaps and maintain essential outlays compounding debt service pressures (with the debt service ratio now estimated at under 50% as at mid-2025).

Against this backdrop, we expect the fiscal deficit to widen to c.8% of GDP in 2025, but narrow to c5% of GDP in 2026 – conditional on improved non-oil revenue performance amid digitisation-enabled tax administration. The recent rebasing of GDP has optically improved the debt-to-GDP ratio to roughly 30.7% for 2026, providing some optical relief but not altering the fundamental debt service burden.  We recognise the ambitious targets set by the new tax reform bills to raise the revenue-to-GDP ratio to circa 18% by 2030. However, Agusto & Co. is of the opinion that revenue mobilisation efforts may be crowded out by expenditure rigidities. This is in addition to the political economy of the approaching election cycle may delay politically sensitive measures such as VAT adjustments, accentuating reliance on efficiency rather than rate increases.

Monetary Policy: A Fragile Anchoring?

The monetary policy environment in 2026 is expected to be characterised by a cautious easing bias, conditional on the trajectory of inflation. We project a moderation in headline inflation to an average of c. 12.5% in 2026. This disinflationary trend is predicated on the waning of base effects and the lagged impact of orthodox monetary tightening.

Figure 2: Headline Inflation (%)

Source: National Bureau of Statistics, Agusto & Co. Forecast

However, the path to price stability is fraught with risks. “Anticipated inflation”, driven by public expectations of future price rises, remains a powerful force. If economic agents expect the election cycle to trigger a liquidity surge, they may price these expectations into wages and contracts, creating a self-fulfilling inflationary spiral. The CBN’s commitment to inflation targeting will be tested; maintaining high real interest rates to anchor expectations will be politically unpopular but economically vital.

In the banking sector, a dynamic of simultaneous consolidation and fragmentation is emerging. The industry is witnessing a divergence: while traditional banks are recapitalising and consolidating to withstand external shocks, a wave of fintech disruptors is aggressively capturing market share in the payments and retail segments. This intensity of rivalry suggests a squeeze on margins for traditional money deposit banks, compelling them to innovate or risk obsolescence. For the broader economy, this competition is beneficial, driving financial inclusion and reducing the cost of intermediation.

In 2025, we anticipate a tightening of profitability as net interest margins compress and banks transition from risk-free yields to real-sector lending. The absence of revaluation gains will also be a moderating factor for profitability. We believe that this softer bottom line and the significantly expanded capital base post-recapitalisation, will result in the dilution of the industry’s Return on Equity (ROE) to 27.3%. However, by 2026, as banks aggressively leverage their new war chests to underwrite large-ticket real sector transactions and reap the efficiency dividends of digital investments, we anticipate a surge in ROE to a robust 44.6%.

The External Ledger: Fragile Stability?

We forecast the naira to trade within the ₦1,400/$ to ₦1,500/$ band in 2026. This relative stability is underpinned by improved foreign exchange liquidity from oil exports and the commencement of refined product exports. We project the current account to remain in surplus at c.4.2% of GDP in 2026, bolstered by a trade surplus that reflects both improved export receipts and import substitution.

Figure 3: Exchange Rate (₦/$)

Source: CBN, FMDQ, Agusto & Co. forecasts

External reserves are expected to remain resilient, hovering around the $45 billion mark. However, we caution that the gross figure masks underlying vulnerabilities, particularly when net reserves are adjusted for short-term swaps and encumbrances. The accretion of reserves will depend heavily on the sustained inflow of diaspora remittances, bolstered by the “brain drain” of skilled labour, and the repatriation of export proceeds.

A critical success factor will be the CBN’s resistance to reverting to administrative controls. The temptation to “defend” the Naira during periods of volatility must be weighed against the cost of eroding market confidence. The expected improvement in the net export position, driven by the hydrocarbon sector’s shift from crude exports to refined product exports, should theoretically provide a structural support level for the currency, reducing the volatility associated with crude oil price cycles.

GDP Growth Outlook and Sectoral Drivers

We forecast real GDP growth to accelerate moderately to 4.2% in 2026, up from an estimated 3.9% in 2025. The expansion is likely to be uneven, anchored in select investment-led sectors rather than broad-based momentum.

Figure 4: GDP Growth (%)

Source: NBS, Agusto & Co. forecast

Telecommunications and the digital economy will continue to lead growth, supported by 5G rollout, rising data consumption, and deeper integration of fintech into everyday transactions. Manufacturing may stage a cautious rebound, conditional on lower and more reliable energy costs, particularly for energy-intensive subsectors such as cement. Agriculture will remain constrained by structural inefficiencies and insecurity, though agro-processing offers upside. In energy, operational reforms and improved oil production (to an average of 1.6 mbpd), as well as gas development should stabilise contributions despite softer oil prices.

Figure 5: Crude Oil Production (million barrels per day)

Source: OPEC, Agusto & Co. forecast

Conclusion

In 2026, the choices made, or conveniently deferred, will determine whether Nigeria capitalises on its structural reforms or regresses into fiscal profligacy. On one hand, the painful market-liberalising reforms of 2023 mature into the bedrock of a diversified, resilient economy that rewards institutional investors with genuine, long-term value and Nigeria finally untethers itself from its decades-long susceptibility to crude oil volatility. On the other hand, unchecked election spending and a collapse in oil prices could unravel recent stabilisation gains – achieved at such great social cost. Ultimately, the differentiator will be the political will to sustain vital but unpopular reforms when the ballot box beckons. For Nigeria, the time for “muddling through” is over; history is watching, and the markets are keeping score.