Nigeria cannot build prosperity on fragile foundations

Nigeria’s latest report from the International Monetary Fund presents a picture that should command the attention of policymakers and citizens alike. It is a report that acknowledges progress, welcomes difficult reforms and recognises signs of economic stabilisation. Yet it is also a report that raises profound questions about the durability of that progress and the foundations upon which it rests.

The IMF’s warning regarding Nigeria’s proposed plan to raise up to $5 billion through a derivatives-based financing arrangement with First Abu Dhabi Bank deserves particular scrutiny. Although the transaction has secured Senate approval and follows a path already taken by countries such as Senegal and Angola, the Fund’s concerns go beyond the particulars of a single financial instrument. They touch on a broader issue that has long troubled developing economies: the temptation to pursue increasingly sophisticated borrowing arrangements without sufficient public transparency and scrutiny.

Christian Ebeke, the IMF’s mission chief in Nigeria, cautioned that such transactions are often opaque and complex. His observation should not be dismissed as routine bureaucratic caution. Governments have every right to seek innovative financing mechanisms, especially when faced with pressing infrastructure needs and mounting fiscal demands. However, public borrowing carries obligations that extend beyond the tenure of any administration. Citizens deserve a clear understanding of the commitments being undertaken in their name, particularly when the sums involved run into billions of dollars.

The concern is heightened by Nigeria’s long and often painful history with debt. Decades after the country secured relief from a crushing external debt burden, borrowing once again occupies a prominent place in public finance. The challenge is not necessarily the existence of debt itself. Modern economies borrow for development, expansion and investment. The real issue lies in ensuring that borrowing remains transparent, sustainable and tied to measurable economic returns. Financial arrangements that are difficult for the public to understand inevitably invite questions about accountability.

Yet focusing solely on the IMF’s reservations about the proposed financing deal would overlook the wider message contained in the Fund’s assessment. The report also offers substantial recognition of the reforms introduced under President Bola Tinubu since 2023. The removal of fuel subsidies, exchange-rate liberalisation and tighter monetary policy were politically difficult decisions that successive administrations often avoided. The IMF credits these measures with strengthening macroeconomic management, rebuilding economic buffers and improving investor confidence.

There is evidence to support that assessment. Foreign exchange reforms have helped restore a degree of confidence in Nigeria’s financial markets. Risk premiums have eased, portfolio investments have returned and the Central Bank of Nigeria reports gross external reserves of approximately $50 billion, the highest level recorded in seventeen years. Access to international capital markets, which had become increasingly challenging, has improved.

These developments matter. A country cannot sustain economic growth without stability. Investors are reluctant to commit capital where policy uncertainty dominates. Businesses struggle to plan when exchange-rate distortions undermine market confidence. Sound macroeconomic management remains a necessary condition for long-term development. Necessary, however, does not mean sufficient.

The IMF’s most sobering observation concerns the reality facing millions of Nigerians whose daily lives have seen little relief despite improving economic indicators. Poverty remains widespread, affecting an estimated 63 per cent of the population. Food insecurity continues to threaten millions of households. Across urban centres and rural communities alike, rising living costs have eroded purchasing power, while many families find themselves making increasingly difficult choices between basic necessities.

This gap between economic recovery and social welfare represents one of the most serious challenges confronting the country. Governments often celebrate favourable macroeconomic statistics because they provide evidence that difficult reforms are working. Such indicators are important, but they do not tell the whole story. Citizens experience the economy through food prices, transport costs, employment opportunities and household income. They measure progress through their capacity to provide for their families and improve their quality of life.

An economy may appear healthier on paper while many of its people continue to endure worsening hardship. That disconnect carries consequences. Public support for reform weakens when sacrifices appear endless and benefits remain elusive. Economic policies require social legitimacy if they are to survive beyond the initial phase of adjustment.

The IMF also drew attention to another vulnerability that policymakers would do well to heed. Much of Nigeria’s recent success in attracting foreign capital has come through portfolio investment. While such inflows can provide valuable support to reserves and financial markets, they are inherently volatile. International investors respond quickly to changes in global conditions, and capital that enters an economy today can leave tomorrow.

History offers repeated reminders of the dangers associated with excessive reliance on short-term capital. Financial turbulence in distant markets, geopolitical tensions or shifts in interest-rate policy among major economies can trigger sudden reversals. Countries that depend heavily on portfolio inflows often discover that apparent stability can evaporate with alarming speed.

This is why the IMF advocates greater emphasis on attracting foreign direct investment. Unlike portfolio flows, direct investment typically involves long-term commitments to productive sectors of the economy. Factories, manufacturing facilities, technology hubs, agricultural ventures and infrastructure projects generate employment, transfer skills and create lasting economic value. Such investments strengthen foundations rather than merely supporting appearances.

That distinction is crucial because nations do not build prosperity through favourable statistics alone. They build it through productive industries, resilient institutions, transparent governance and broad-based economic opportunity. Strong reserves, investor confidence and improved fiscal management are valuable achievements. Yet they are pillars supporting a larger structure, not the structure itself.

Nigeria’s reform programme has undoubtedly produced measurable gains. The IMF’s assessment confirms as much. Nevertheless, the same report serves as a reminder that economic progress remains vulnerable to both domestic weaknesses and external shocks, including geopolitical tensions capable of disrupting global markets and investment flows.

The lesson is clear. Economic stabilisation is an important milestone, but it cannot become the final destination. Borrowing must remain transparent. Investment must become more productive and durable. Growth must translate into meaningful improvements in living standards. Poverty and food insecurity must receive the same urgency as fiscal and monetary reforms.

Prosperity built on unstable foundations rarely endures. The challenge before Nigeria is to ensure that today’s encouraging indicators are transformed into the stronger, deeper and more resilient foundations upon which lasting national development can stand.