The International Monetary Fund (IMF) has backed the Central Bank of Nigeria’s (CBN) September interest rate reduction to 23%, calling it a “normalization” and the right move given Nigeria’s significant progress in lowering inflation.
However, the IMF emphasized that the overall monetary policy stance remains restrictive and tight, rather than a shift to full monetary easing.
The Fund also urged the Federal Government to mobilise more revenue from non-oil sources, deepen structural reforms to attract private investment and create jobs, and ensure that savings from subsidy reforms are channelled towards vulnerable Nigerians.
Zeine Ould Zeidane, director of the IMF’s African Department, said this at a press briefing at the ongoing IMF-World Bank Annual Meetings 2026 in Thailand.
Zeidane said Nigeria’s progress in reducing inflation had provided room for a recalibration of monetary policy without necessarily signalling a shift towards monetary easing.
He said the CBN’s decision to reduce the real interest-rate burden was appropriate, given the improvement in the inflation outlook, but stressed that monetary conditions remained restrictive.
“Now, on the question on monetary policy, what I can say is that, in the case of Nigeria, they have made significant progress towards lowering inflation because it has been coming from a high level, and they had a high real interest rate.
“So, they decided to normalise the monetary policy to lower that real interest rate, which is appropriate in our view. It’s the right thing to do.
“And it’s not easing yet because the stance itself remains a tight stance. So, the qualification that the central bank did is the right one, in our view,” Zeidane said.
Zeidane however, stressed that Nigeria needed to complement its monetary policy efforts with fiscal and structural reforms capable of strengthening economic growth, attracting investment and creating jobs.
Defending the decision of the Fund to upgrade its forecast for Nigeria’s economic growth in 2026 to 4.2 per cent, Deputy Director, African Department, Montfort Mlachila, said Nigeria was benefiting from improved international oil prices, which had boosted foreign exchange receipts and contributed to the improvement in external reserves.
He said the increase in foreign exchange inflows had also supported liquidity in the economy, while the decline in inflation had improved the overall macroeconomic environment.
“So, in terms of growth, Nigeria is benefiting from the improved oil prices, which has raised the amount of foreign exchange receipts and, therefore, reserves have also improved, and there’s more liquidity in the economy.
“So, we are upgrading the growth this year from 4.0 last year to 4.2, and a similar level, 4.3 next year,” Mlachila said.
He attributed the projected growth partly to favourable external conditions, particularly higher oil prices, while identifying services as the principal driver of domestic economic expansion.
“Growth this year is largely driven, apart from benefiting from the very propitious external environment, growth in the economy is mostly driven by services.
“And also, one thing which has happened over the past several months, starting in 2025, is a significant decline in inflation, which has improved the overall macroeconomic situation and availability of foreign exchange,” he added.
Despite the improving outlook, the IMF warned that Nigeria needed to reduce its dependence on oil revenue and strengthen domestic revenue mobilisation to create the fiscal space required to finance development priorities.
Zeidane said the government should prioritise revenue mobilisation outside the oil sector while continuing reforms to improve the country’s attractiveness to private investors.
He said: “Our advice for the government has always been to, on one side, mobilise more domestic revenue outside the oil sector to create fiscal space for education, health infrastructure, to make sure that, but at the same time, continue the structural reform to be more attractive for the private sector.
“This is a country that has a lot of dynamism, a lot of young entrepreneurs, and a young, tech-savvy population. So, there is, and it’s a large market, very attractive for private investment in general.
“But it’s important to do structural reform in terms of governance, business environment, as I said, integration, and so all of these will certainly help accelerate growth and create jobs.”
The IMF’s recommendation comes amid the government’s efforts to stabilise the economy following major policy changes, including exchange-rate reforms and the removal of petrol subsidies, which have increased the cost of living for households and raised concerns about the distribution of the benefits of reform.
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On social protection, Zeidane said governments needed to give priority to protecting vulnerable citizens, stressing that this principle was central to the IMF’s policy advice across countries and not peculiar to Nigeria.
“On the question on subsidies, what I want to say is that, as an institution, we recommend in general to governments to pay great attention to social protection and to protect the most vulnerable component of society.
“It’s not specific to Nigeria. If you look at our programme, we have many programmes where we have always an integrative target on social spending.
“We care a lot about the most vulnerable component of society,” he said.
He argued that broad-based subsidies, particularly energy subsidies, often disproportionately benefit wealthier households, meaning that governments spend substantial resources supporting consumers who may not require assistance.
“Our advice on subsidies is that if you look at subsidies in general, and in particular energy subsidies, they benefit the wealthiest component of society.
“So, if you do a certain amount of subsidies, most of it is going to those who don’t need it,” Zeidane said.
According to him, the appropriate response is not necessarily to withdraw subsidies abruptly, but to phase them out gradually and ensure that the resulting savings are used to support households that need assistance.
“And our advice in many places has been to phase these subsidies gradually and make sure that what you save from the subsidy reform is well targeted to those who actually need it.
“It’s better to support people who need support than supporting products that actually can affect both your fiscal position, but also, for oil importers, for example, the level of import bill that you have.
“So, it’s important to have a targeted system of support to the most vulnerable component of society,” he added.
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