IMF Warns Unrealistic Budgets Are Deepening Nigeria’s Fiscal Deficit Pressures

By Kingsley Ani

The International Monetary Fund (IMF) recently warned that Nigeria and other Sub-Saharan African countries are widening fiscal deficits because national budgets are frequently built on unrealistic revenue projections and expenditure assumptions that governments struggle to implement.

In a research paper titled Budget Credibility in Sub-Saharan Africa, examining fiscal outcomes across 39 countries between 2021 and 2024, the IMF said that fiscal gaps across the region have become “persistent and often large”, reflecting deeper institutional weaknesses rather than temporary forecasting errors.

According to the Fund, governments routinely record higher-than-planned deficits because revenue forecasts are overly optimistic while recurrent spending on wages, subsidies, goods and services, and social transfers consistently exceeds approved limits. The IMF added that capital expenditure is often the first casualty when revenues underperform or external financing is delayed.

The warning comes as Nigeria plans to increase borrowing sharply in 2026. The federal government raised its proposed 2026 budget from N58.4 trillion to N67.4 trillion after President Bola Ahmed Tinubu requested Senate approval for an additional N9 trillion in expenditure. Planned borrowing also rose from N17.89 trillion to N29.20 trillion.

The IMF further projected that Sub-Saharan Africa’s median fiscal deficit would widen to 3.2 percent of Gross Domestic Product in 2026 despite support from firmer commodity prices in some economies.

DECISION HIGHLIGHT

The IMF is signalling that weak budget credibility, rather than revenue scarcity alone, has become a central driver of widening deficits, rising debt dependence and delayed development outcomes across Sub-Saharan Africa.

DECISION MEMO

The IMF’s assessment reframes fiscal instability in Africa as a governance and institutional execution problem rather than merely an economic resource challenge.

At the centre of the warning is the credibility gap between approved budgets and actual fiscal outcomes. Governments across the region increasingly adopt politically ambitious revenue projections and expenditure plans that later prove unattainable under prevailing economic conditions. The result is a cycle of deficit expansion, emergency borrowing and capital project underperformance.

For Nigeria, the concern is especially relevant given the rapid expansion of both the 2026 budget size and borrowing plan. The increase in planned borrowing to N29.20 trillion suggests that fiscal pressures are intensifying even amid ongoing reform measures designed to improve public revenue and macroeconomic stability.

The IMF’s emphasis on recurrent expenditure overspending is also significant. Persistent spending on wages, subsidies and government operations continues to crowd out productive capital investments such as roads, hospitals, schools and industrial infrastructure. This weakens long-term growth capacity while simultaneously increasing debt-servicing burdens.

The report further highlights a recurring fiscal pattern across many African economies, infrastructure projects are frequently delayed or abandoned during periods of revenue weakness because recurrent obligations are politically harder to cut. This creates a structural imbalance where consumption expenditure remains protected while development expenditure becomes adjustment-sensitive.

The finding that countries under IMF-supported programmes record lower fiscal slippages also reflects the role of external monitoring in enforcing budget discipline. Conversely, election cycles and fragile administrative systems tend to weaken expenditure controls and increase deviation from approved fiscal plans.

Overall, the report suggests that Africa’s fiscal challenge is becoming increasingly institutional. Without stronger expenditure controls, realistic forecasting and credible implementation frameworks, rising budget sizes alone may deepen deficits without delivering proportional development outcomes.

DATA BOX

• IMF study coverage: 39 Sub-Saharan African countries
  • Study period: 2021 to 2024
  • Projected Sub-Saharan Africa median fiscal deficit in 2026: 3.2 percent of GDP
  • Nigeria’s revised 2026 proposed budget: N67.4 trillion
  • Previous proposed Nigerian budget: N58.4 trillion
  • Increase requested by President Bola Ahmed Tinubu: N9 trillion
  • Nigeria’s revised planned borrowing: N29.20 trillion
  • Previous planned borrowing estimate: N17.89 trillion
  • Increase in borrowing plan: N11.31 trillion

WHO WINS / WHO LOSES

Winners:
• Creditors and debt market participants benefiting from higher sovereign borrowing
• Recurrent expenditure beneficiaries protected during fiscal stress periods
• Economies with stronger fiscal institutions and expenditure controls

Losers:
• Infrastructure and capital projects facing under-execution
• Taxpayers exposed to rising debt-servicing burdens
• Low-income and fragile states with weaker administrative capacity
• Long-term development sectors affected by delayed investments

POLICY SIGNALS

• Increasing pressure for stronger fiscal governance and expenditure controls
  • Greater scrutiny of budget assumptions and revenue forecasting methods
  • Continued dependence on sovereign borrowing across African economies
  • Rising institutional focus on fiscal credibility rather than headline budget size
  • Potential expansion of IMF-linked fiscal monitoring and reform frameworks

INVESTOR SIGNAL

The IMF warning reinforces investor concerns around fiscal sustainability and debt accumulation risks across Sub-Saharan Africa, particularly in economies pursuing aggressive expenditure expansion under constrained revenue conditions.

For Nigeria, rising borrowing projections may strengthen near-term sovereign debt market activity, but also increase scrutiny around debt sustainability, budget execution quality and infrastructure delivery efficiency. Investors are likely to monitor whether expanded borrowing translates into productive capital formation or recurrent expenditure pressure.

RISK RADAR

• Persistent fiscal deficits driven by unrealistic revenue assumptions
  • Rising sovereign debt-servicing obligations
  • Under-execution of infrastructure and development projects
  • Election-cycle spending pressures weakening fiscal discipline
  • Weak expenditure controls and administrative capacity
  • Delayed external financing and grant inflows
  • Increased dependence on debt financing amid constrained fiscal space