Nigeria’s next economic test is turning stability into better living standards

The World Bank’s October 2026 Nigeria Development Update, Beyond the Federal Purse: How Higher Revenues Shaped State Priorities, provides a useful framework for examining Nigeria’s transition. The country’s economic debate is entering a new phase, after years in which the central policy concerns were the removal of distortions, the restoration of macroeconomic stability and the rebuilding of confidence in the naira. The question now is: What benefits are the transition delivering for businesses, workers and households?

The report recognises that economic growth has remained resilient, while higher oil prices have strengthened government revenues and the country’s external position. Yet it also warns that rising global fuel prices have interrupted the progress made in reducing inflation, leaving household purchasing power under pressure even as important macroeconomic indicators improve.

The challenge is no longer simply to establish whether the reforms have improved the economy’s underlying indicators. It is to determine whether the resulting gains can support faster growth, create productive employment and raise living standards across a country where many households continue to struggle with the cost of food, transport, energy and other necessities.

There are reasons to acknowledge the improvement in Nigeria’s macroeconomic position. The World Bank reports that real gross domestic product grew by 4.2 per cent in the first half of 2026, compared with 3.9 per cent and 3.5 per cent in the corresponding periods of 2025 and 2024, respectively. Growth was driven largely by services, alongside a stronger contribution from agriculture. The current-account surplus also widened to $12 billion in the first half of 2026, while gross external reserves rose above $54 billion in September.

Higher oil prices have helped strengthen Nigeria’s export earnings and government revenues, but the benefits depend partly on how much oil the country can produce and sell, the cost of production and the obligations attached to some future oil receipts. Consequently, an increase in the international price of crude does not automatically translate into an equivalent increase in the revenue immediately available to the government.

The improvement in the external position also needs to be interpreted alongside the sources of foreign-exchange inflows. The World Bank notes that portfolio investment has contributed substantially to the accumulation of reserves. While such inflows can strengthen the foreign-exchange market, their sustainability depends partly on investor confidence and financial-market conditions, making them different from a durable expansion of non-oil exports and productive investment.

Inflation remains another constraint. The rise in global fuel prices following the conflict in the Middle East, combined with seasonal food-price pressures, has interrupted the decline that began in early 2025. Higher fuel and transport costs affect more than the prices consumers pay directly at filling stations; they also feed into the cost of moving agricultural produce, distributing manufactured goods and operating businesses.

Consequently, an economy can record stronger output, a better external balance and higher government revenues without households experiencing a corresponding improvement in their purchasing power. Macroeconomic stability creates the conditions for recovery, but it does not guarantee that the benefits will be broadly distributed.

The World Bank’s examination of state finances brings the discussion closer to the quality of economic management. Between 2023 and 2025, aggregate state revenues increased by about 93 per cent in real terms, while expenditure rose by approximately 92 per cent. The share of total state expenditure devoted to capital spending increased from 46 per cent to 61 per cent, with transport infrastructure accounting for the largest increase.

These figures suggest that state governments have used part of the additional fiscal space to expand investment in infrastructure and other economic activities. Better roads, reliable water supplies, functioning schools and accessible healthcare can reduce the costs faced by businesses and households, improve productivity and create conditions for private investment.

However, the composition of public spending deserves as much attention as its overall size. The World Bank reports that education’s share of state expenditure declined from 14.9 per cent in 2021 to 12.1 per cent in 2025, while health spending remained broadly stable at around seven per cent. Social protection’s share increased from 1.4 per cent to 4.4 per cent. Although expenditure on education and health increased in absolute terms, their slower growth relative to economic infrastructure raises questions about whether states are allocating sufficient resources to the human capabilities required for sustained development.

Infrastructure and human capital should not be treated as competing priorities. A road may improve access to markets, but the productivity of the people using it depends on their health, education and skills. Industrial expansion requires electricity and transport infrastructure, but it also requires a workforce capable of operating modern equipment, maintaining quality and adopting new technologies.

There is a further concern about the capacity of states to sustain these improvements. The World Bank reports that only Lagos and Enugu generated enough internally generated revenue to cover their recurrent expenditure in 2025. The continued dependence of most states on federal allocations leaves their budgets vulnerable to changes in federation revenue and underscores the need to strengthen local revenue administration without imposing unnecessary burdens on productive economic activity.