Leading Nigerian economists and financial analysts have challenged key recommendations contained in the International Monetary Fund's (IMF) latest assessment of the country's economy, although many agree with the Fund's warning against the Federal Government's proposed $5 billion loan arrangement with a United Arab Emirates lender.
The IMF's 2026 Article IV Mission Concluding Statement commended recent economic reforms but also urged policymakers to adopt additional measures aimed at strengthening fiscal stability and reducing economic vulnerabilities.
Among its major recommendations, the IMF cautioned against the Federal Government's planned $5 billion borrowing from First Abu Dhabi Bank, citing concerns over the collateral structure attached to the facility, which reportedly amounts to 133.3 per cent of the loan value.
The Fund also advocated an increase in Nigeria's Value Added Tax (VAT), continued monetary tightening by the Central Bank of Nigeria (CBN), stronger social intervention programmes, greater fiscal transparency, and a reduced dependence on foreign portfolio inflows.
While the Federal Government welcomed the report as an endorsement of its economic agenda, economists remain divided on several of the IMF's prescriptions.
Government Hails IMF Report as Reform Endorsement
Reacting to the IMF's assessment, Minister of Finance and Coordinating Minister of the Economy, Mr. Taiwo Oyedele, described the report as independent validation of the administration's reform programme.
"The report provides further independent validation that the bold and necessary reforms undertaken under the leadership of President Bola Ahmed Tinubu, are strengthening macroeconomic stability, restoring confidence, and laying the foundation for sustainable and inclusive growth," he said.
The IMF projected that inflationary pressures could ease in the second half of the year while acknowledging that recent reforms have improved macroeconomic stability and investor confidence.
Economists Back IMF Warning on $5bn Loan
One area where there appears to be broad agreement is the IMF's caution over the proposed borrowing from First Abu Dhabi Bank.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said the Fund's concerns were justified given Nigeria's rising debt-service burden.
According to him, the country's challenge is not necessarily the size of its debt stock but the increasing proportion of government revenue consumed by debt servicing.
"A substantial share of public revenue is now devoted to debt-service obligations, leaving less fiscal space for infrastructure, healthcare, education, security and other growth-enhancing investments," Yusuf said.
He stressed that debt sustainability should be measured by the government's ability to comfortably service its obligations without compromising critical development priorities.
Yusuf urged authorities to carefully scrutinize the cost, repayment structure, tenor, currency exposure and overall economic value of the proposed facility before committing to it.
"Borrowing should support growth, not merely increase future debt-service pressures," he stated.
Loan Structure Raises Additional Concerns
Head of Equity Research at Quest Merchant Bank, Mr. Tunde Abidoye, also sided with the IMF, describing the proposed loan structure as potentially risky.
According to him, the facility is structured as a total return swap, a derivative instrument that could expose Nigeria to significant market volatility.
"The IMF is right on this. Since the loan is essentially a derivative, it entails significant volatility which could crystallise through margin calls in the event of adverse shocks such as a sharp drop in oil prices. While it provides immediate liquidity, the risks are substantial," he explained.
However, Chief Economist at United Capital Plc, Mr. Ayodele Akinwunmi, argued that external borrowing can be beneficial if the funds are directed toward productive infrastructure projects capable of stimulating growth and improving competitiveness.
"Nigeria's current macroeconomic environment presents a compelling case for external borrowing, provided such funds are channelled into infrastructure development. Expectations of a stable naira, relatively lower international interest rates and concessionary loan terms make external financing attractive at this time," he said.
For David Adonri, Executive Vice Chairman of Highcap Securities Limited, the IMF's concerns are reasonable, but he questioned whether the government would heed the warning.
"IMF's counsel to FGN against borrowing whether from Abu Dhabi or any other foreign country is reasonable. However, I doubt if FGN will heed the advice because being in debt trap, FGN requires new foreign debt to service existing obligations. Otherwise, a sovereign default with dire consequences may become imminent," Adonri warned.
Strong Opposition to VAT Increase
The IMF's recommendation that Nigeria raise its VAT rate generated significant pushback from analysts.
Abidoye argued that households and businesses have already endured substantial economic adjustments in recent years and that additional tax burdens could worsen living conditions.
"VAT provides an easy avenue for governments, particularly sub-national governments, to increase revenue. However, Nigerians have absorbed significant reform-induced pressures over the past three years. I do not think the timing is right for a VAT increase," he said.
Akinwunmi echoed similar concerns, insisting that the country's priority should be expanding the tax base rather than increasing tax rates.
"What Nigeria needs is not higher tax rates but broader tax compliance. Expanding the number of individuals and institutions paying taxes will strengthen government revenue without stifling growth," he stated.
Adonri was even more direct in his criticism of the recommendation.
"IMF's advice to FGN to raise VAT in order to equalize with neighboring countries is unacceptable. The reason is too pedestrian. Taxation is a serious fiscal tool aimed at specific strategic imperatives of the economy. VAT is a consumption levy that can worsen the poverty level of consumers. This is the time for relief and not extra burden," he said.
Diverging Views on Monetary Tightening
The IMF also advised the Central Bank of Nigeria to maintain a tight monetary stance as inflationary pressures persist.
While economists acknowledged inflation risks, some questioned whether additional interest-rate increases would be effective.
Abidoye noted that much of the current inflation is being driven by supply-side factors, particularly energy costs, making monetary policy less effective in addressing the immediate problem.
"The current inflationary pressure is largely driven by supply-side energy shocks. Monetary policy can do little to address first-round effects. Central banks usually respond after a few months to contain second-round effects," he explained.
Akinwunmi believes the CBN's current stance remains appropriate but cautioned against further rate hikes.
"The Central Bank is unlikely to lower rates hastily because inflationary pressures remain significant. However, raising rates further may be counterproductive under present conditions," he said.
He added that rising oil prices, election-related spending and security concerns could keep inflation in double digits for much of the year.
Adonri, however, supported the IMF's recommendation.
"The IMF recommendation is justifiable. CBN loosened monetary policy prematurely because the policy objective of forcing inflation rate to single digit had not been achieved when money supply was increased," he argued.
Inflation Outlook and Structural Challenges
While official data suggests inflation may moderate in the coming months, Adonri warned that conditions on the ground tell a more complicated story.
"Official figures indicate that inflation is moderating and will continue into the future but the reality on ground shows otherwise," he said.
According to him, recent reforms have largely focused on managing demand, while the structural reforms needed to boost production and strengthen supply remain insufficient.
"The most critical element which is restoration of national security is callously treated with levity. Instead of focusing on foundational production infrastructure, fiscal policy is centered on secondary infrastructure. As a result, the economy remains heavily import dependent and unable to generate productive employment," he stated.
Economists Agree on Need for More Foreign Direct Investment
One area of broad consensus among analysts was the IMF's warning against excessive reliance on Foreign Portfolio Investments (FPIs).
Both Abidoye and Akinwunmi agreed that Nigeria should focus on attracting more Foreign Direct Investment (FDI), which is generally considered more stable and capable of creating jobs, boosting production and supporting long-term growth.
Adonri also supported this position.
"Portfolio Investment is hot money which is very volatile. What the economy needs now is patient capital (FDI) to boost the supply side of the economy," he said.
As debates continue over the IMF's recommendations, the differing opinions among economists underscore the delicate balancing act facing policymakers as they seek to sustain economic reforms, contain inflation, manage debt and stimulate growth in Africa's largest economy.