Nigeria’s economy on a rapid rise but so are prices

Nigeria’s economy grew 4.6% year-on-year in Q4 2024, marking its fastest expansion in a decade. According to the World Bank, the full-year growth rate reached 3.6% and is expected to continue in 2025. This is a major step forward for Africa’s largest economy, driven by long-overdue reforms and increased fiscal discipline.

But there’s a catch: inflation remains dangerously high.

President Bola Tinubu’s bold economic restructuring—removing fuel subsidies, reducing electricity allowances, and devaluing the naira—helped free up government revenue and rebuild foreign currency reserves (now over $37 billion). These reforms also led to a more flexible, market-driven exchange rate. However, they’ve come at a cost.

Prices for everyday goods have soared, hitting households hard. That’s because the removal of subsidies and currency devaluation both feed directly into cost-push inflation, where production costs rise and firms pass those costs on to consumers. In an economy where wages haven’t kept up, this can cause a fall in real incomes and lead to lower consumer confidence—just as GDP growth is picking up.

This situation highlights a classic macroeconomic tension: the trade-off between inflation and economic growth. While short-term growth may look strong, sustained inflation can erode purchasing power, reduce investment, and limit the long-term potential of the economy. The World Bank is urging Nigeria to maintain tight monetary policy (higher interest rates) and disciplined government spending to curb inflationary pressures.

There’s also a link to aggregate demand. If inflation remains unchecked, consumers may spend less, slowing down growth in consumption—a key component of Nigeria’s GDP.

For now, Nigeria’s fiscal outlook is improving. Revenue rose by 4.5% of GDP in 2024, narrowing the budget deficit to just 3%, down from 5.4% the year before. But some of the expected gains from subsidy removal haven’t yet materialised, and political pressure may mount if inflation isn’t controlled.

This case is a powerful reminder of the interdependence between growth, inflation, and government policy—and why timing and coordination between fiscal and monetary authorities matter in shaping development outcomes.