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The great fiscal reversal 08 May 2026

Three budgetary eras are now discernible in Nigeria since 2011, each defined less by changes in administration than by distinct orientations to fiscal policy. The first era was 2011-2015, during the administration of President Goodluck Jonathan. It was characterised by fiscal conservatism. During this period, budgets were subject to legal constraints and prudent management. But it was also defined by reform paralysis due to the politics of those years.

The second historic period was President Muhammadu Buhari's eight-year tenure. His administration moved away from fiscal conservatism towards expansion. It significantly expanded the budget, dramatically increased public debt from the low base left by the preceding administration, and preserved the petrol subsidy programme. This era saw two major shocks: the 2016 recession triggered by the oil price crash that began in late 2014 and the 2020 pandemic recession. The objective of achieving economic growth through debt-funded infrastructure investment was further undermined by fiscal indiscipline and graft. In the end, this era marked the longest period of anaemic growth since 1999.

The third era, under the President Bola Ahmed Tinubu administration since May 2023, has been characterised by fiscal liberalism. This pivotal change was expected to benefit from savings resulting from the end of the petrol subsidy programme on his inauguration day and from the soon-to-follow devaluation of the naira. But what Nigerians have witnessed is a rapid rise in public debt to finance both approved projects and controversial infrastructure, with costs exceeding initial budgetary limits. It has been three years of astonishing fiscal maladies, during which the 'Renewed Hope' agenda has devolved into a performance of unbridled deficits and governance instability. As public debt has soared, industrial capacity has plummeted, and poverty among citizens has grown.  

It is useful to provide historical highlights and theoretical analysis to illustrate the country’s precarious fiscal trajectory, which has led to the current messy cul-de-sac. Despite acute shocks over the past 15 years, the country could have reached a safe economic shore, but it is not surprising that it is now deeper in turbulent waters. Ultimately, it comes down to policy choices and the sociopolitical context in which they were implemented.

Inherited Legacy

During the Jonathan years, the administration kept its fiscal deficit within the statutory limit of 3 per cent of GDP, as required by the Fiscal Responsibility Act (FRA) of 2007. For instance, the fiscal deficit was just 1.24 per cent of GDP in 2014, and in the 2015 budget it fell to a record low of 0.79 per cent. Over the four-year period, the administration successfully contained recurrent expenditure, reducing it from 74 per cent in 2011 to below 70 per cent by 2015. Likewise, the administration deliberately reduced domestic borrowing from N862 billion to N794 billion in 2012 as part of a prudent, conservative debt management policy.

President Jonathan essentially inherited the fiscal conservatism of his two immediate predecessors. The Obasanjo administration (1999-2007) capitalised on rising oil prices to implement an exit strategy for the approximately $30 billion Nigeria owed to the Paris Club, finalised in 2005. The administration also established the Excess Crude Account (ECA) to save oil revenue above budgetary benchmark prices, thereby combining limited deficit spending with the build-up of a savings buffer for the country.

President Umaru Yar’Adua (2007-2010) built on this foundation by signing the FRA into law two months into his administration. Under his stewardship, the ECA's balances continued to grow as crude oil prices rose, reaching over $22 billion. Ngozi Okonjo-Iweala, who was instrumental in the fiscal successes of the Obasanjo administration, returned to serve as finance minister under Jonathan. The administration leveraged legal guardrails, financial prudence, and economic expertise to maintain a competent yet cautious fiscal stance. 

The Jonathan administration had to contend with the lingering effects of the 2008-2009 global financial crisis. Between May 2010, when he succeeded President Yar’Adua, who had died in office before completing his first term, and May 2015, when Jonathan left office, more than $18 billion was drawn down from the ECA. The funds were largely distributed to state governors, ostensibly to offset revenue shortfalls caused by lower oil prices. The administration also utilised the fiscal buffer to keep budget deficits low. The broader policy orientation was to reduce the share of recurrent expenditure in the total budget and to limit borrowing to capital expenditure. Accordingly, recurrent expenditure fell from 74 per cent in 2011 to below 70 per cent in 2015. This period also saw a year-on-year reduction in domestic borrowing.

Nevertheless, there was a preponderance of evidence that the Jonathan administration was politically weak and used the fiscal framework to appease its political opposition. Indeed, the hostile political environment was unfavourable to significant economic reform, as illustrated by the opposition’s civic mobilisation against the 2012 proposal to end the fuel subsidy and by its criticism of the positive outcome of the 2014 GDP rebasing. 

Walking on political eggshells arguably denied opportunities for key reforms, including reforming the subsidy programme to improve its targeting and curb its abuses, which, in my view, is preferable to ending the programme altogether. Many believed this period was marked by numerous missed opportunities, including failing to grow non-oil revenue to expand the budget and the economy. Nigeria maintained budgets that were a fraction of those of smaller African economies, while government tax revenue remained stuck in a rut.

Buhari’s Fiscal Liberalism

In May 2015, Nigeria experienced an inter-party transition of power as Jonathan ultimately lost that year’s presidential election. The change went beyond the arrival of a new occupant at the Aso Rock Presidential Villa. It brought a significant ideological shift. Fiscal policy adopted a more expansive outlook. Six months into his administration, President Buhari signed a supplementary budget of N575 billion into law. His first full-year budget in 2016 marked the patient zero of the ensuing debt-fuelled budgetary expansion. The budget rose by 35 per cent, from N4.49 trillion in 2015 to N6.08 trillion. A threefold increase in capital expenditure, from N634 billion in 2015 to N1.84 trillion in 2016, fuelled the narrative that capex was the driver of the enlarged budget.

Fundamentally, the 2016 budget signalled the administration’s attempt to spend its way out of the economic recession that year, caused by the aforementioned oil-price crash. During the global financial crisis in the previous decade, stimulus spending was validated in the US, with the timeliness of its introduction, the scale of interventions, and effective targeting distinguishing its faster recovery from those of other advanced economies that were also significantly affected by the crisis. As with many economic policy ideas adopted in Nigeria, the country tends to overlook the nuances and the appropriate conditions required for policy effectiveness. This cut-and-paste approach explains why Buhari’s budgetary expansion felt like a leaking bucket rather than a growth engine.

By 2023, the budget had quadrupled the 2015 figure, reaching N21.83 trillion. Over the same period, the deficit grew to N11.34 trillion—more than 15 times the amount recorded eight years earlier. The administration ultimately added N75 trillion to the national debt, which rose from N12.12 trillion in 2015 to over N87 trillion by the time Buhari left office. This staggering amount included the excessive use of the CBN's Ways and Means facility, which lacked the transparency of government bonds. Its N22 trillion balance was securitised before Buhari left office. 

The mammoth budgets and debt delivered weak post-crisis growth. Nevertheless, they enabled the preservation of the fuel subsidy programme, albeit in its scandalous and mis-targeted form. Against voices within the party that intruded on the administration’s fiscal policy, Buhari’s personal frugality and reflexive socialist orientation could have helped moderate the rise in the deficit during his tenure. 

Generally, Buhari left behind a crisis economy. But it was a crisis that still operated within some semblance of a social contract, sustained by the subsidy. His successor, while emulating his administration's lack of budgetary transparency, would soon tear up that contract without first constructing a new safety net. 

From Crisis into a Great Mess

While running for president in 2023 and during the transition period before his inauguration on May 29, after he officially won that year’s presidential election, Bola Ahmed Tinubu sought quick economic wins for his administration. This was at once a result of the parlous economy he was inheriting and arguably a lack of genuine economic vision. In my book, Youth Breed: How Generations of Nigerian Youth Impact Their Country, scheduled for release in June 2026, I discussed the challenges identified by experts regarding gerontocracy, as Nigeria was slipping deeper into it, with another septuagenarian becoming president in 2023.

As in personal life, seeking macroeconomic policy quick wins is fraught with danger. But two such ‘quick wins’ presented themselves: ending energy subsidies and devaluing the naira by floating its exchange rate. President Tinubu adopted both policies within the first month of his administration. In recognition of empirical evidence that these policies often result in deleterious outcomes, at least in the short term, the administration was also seeking ways to mitigate their potential harm.

Nevertheless, the government made up its mind about the precarious reforms, even though there was no infrastructure to deliver palliative measures to the most vulnerable citizens, and the environment had not been cultivated for efficiency. The imperative was to act first and think later.

The very facts of the harm caused by these reforms are discussed first, before looking at the theories that doomed the policies. As a headline negative impact, the introduction of the market exchange rate has crystallised its inflationary risk. Despite public scepticism about official underreporting, Nigeria’s inflation rose sharply as the naira entered a downward spiral and has remained stubbornly in the double digits, at 15.38 per cent in March 2026.

The horrific combination has led to increased poverty among Nigerians. According to the World Bank, an additional 14 million Nigerians fell into poverty within the first year of the Tinubu administration. More recent reports estimate that a whopping 30 million Nigerians have fallen into poverty since the Tinubu administration. Mass poverty is a drag on consumption. For Nigerian industrial manufacturers, an astronomical increase in the cost of both foreign and local inputs, coupled with tepid demand, has pushed capacity utilisation below 40 per cent.

The Nigerian economy has largely been resilient to the fallout of the reforms. This is largely due to its size and the incredible resilience Nigerians have shown in the face of economic hardship. Elsewhere, as shall be shown later, similar reforms have led to fiscal or economic collapse. Yet it is arguable that the overall fallout in Nigeria is larger than it could have been. This is borne out by the shoddy fiscal management Nigerians have witnessed with incredulity. In fact, that sentiment is now shifting to "shady". 

The removal of the petrol subsidy was projected to save the government about $7.5 billion annually. The devaluation of the naira was also expected to increase government revenue in local-currency terms. In one scenario, this could help the administration move towards a balanced budget. In another, it could support reasonable budgetary expansion while keeping the fiscal deficit in check. What has unfolded is sheer ambitious appropriation. At N68.32 trillion, the 2026 budget more than tripled the 2023 budget. This year, N23.85 trillion has been allocated to debt service, more than twice the 2023 figure and more than the combined allocations for education, health, and security in the current year.

The humongous debt service cost has been driven by unrestrained borrowing. In less than three years, the administration has added N87.38 trillion to the total public debt, which stood at N159.28 trillion (approximately $110.97 billion) as of April 2026. Nigeria’s debt-to-GDP ratio has soared to an unprecedented 40 per cent. Even more alarmingly, debt service costs now amount to 70 per cent of government revenue, even as new borrowing funds the 2026 deficit. This is well above the level considered sustainable by the World Bank or anyone else.

Nigerians are asking where the savings from ending the petrol subsidy have gone and where the borrowed funds are being channelled. Further questioning of the then-finance minister, Wale Edun, by lawmakers in late 2025 revealed that while the government had projected N40.8 trillion in revenue, actual revenue was closer to N10.7 trillion, leaving a massive N30 trillion gap that he could no longer obscure. Earlier, the President had said the total projected revenue for that year had been met by the end of August. Edun has now lost his top job for reasons linked to his candour.

It is difficult to understand why a government would claim to have raised N30 trillion in revenue when that claim is demonstrably false. How can revenue be accounted for if it hasn’t been generated? This points to a fabricated budgetary process that lacks transparency and accountability. It may also be partly explained by the World Bank's April allegation that the administration maintains a "hidden spending system" into which N34.53 trillion had been funnelled as pre-distribution deductions from federation revenue over the last three years. While the government promptly dismissed the allegation, stating the deductions were "legitimate statutory transfers," the response left the true state of the burgeoning deficit unclear.

A pall of secrecy now enshrouds the budgets. Amid a presidential claim that the 2025 revenue target was met, government contractors protested in January 2026, alleging they were owed more than N4 trillion for completed work. The government has now said the 2025 budget will run concurrently with the 2026 budget until June. Meanwhile, the government has faced significant transparency challenges, characterised by a nearly year-long suspension of Budget Implementation Reports (BIRs), followed by backlogged releases that remain behind statutory deadlines. The nation’s fiscal position is not only precarious but also a mess.

Exemplifying Economic Theory

Even if not undermined by dodgy implementation, could President Tinubu’s expansionary fiscal policy, which aimed to leverage his dual economic reforms, have succeeded?

His main political rivals would say yes. This is because both former vice president Atiku Abubakar and Peter Obi, the Labour Party's candidate in the 2023 presidential election, believe the policies are right and that they would have implemented them had they become president. The only difference is that they would have implemented those policies differently from Tinubu. Without certainty about which comes first, many independent commentators, as well as the political elite in the governing and opposition parties, consider removing energy subsidies and floating the exchange rate to be sound policies.

This harmonious policy thinking may have been force-fed to Nigerians over years of indoctrination in orthodox economic thinking from Washington, DC-based Bretton Woods institutions. Nigeria’s growing indebtedness to the World Bank also constrains the alternative policies the government can pursue. Furthermore, Nigeria’s public economic discourse has lost its vibrancy, with vocal economists supporting the government’s reforms. Nevertheless, the twin reforms are briefly examined here through the lens of economic theory and policy outcomes.

Rüdiger Dornbusch (1976) warned that when a country liberalises its exchange rate, its currency initially overshoots its long‑run equilibrium value. According to his Dornbusch Overshooting Model, financial markets react instantly to policy shifts, while goods prices adjust slowly, leading to sharper short‑term depreciation than necessary. The naira’s swift weakening to N1,800/$ in the parallel market after the June 2023 float, before stabilising near N1,370, illustrates this overshooting. Yet rather than self‑correcting, the overshooting has entrenched a persistently high‑cost environment.

The naira floatation fiasco reflects Nigeria’s failure to realise the J‑Curve Phenomenon. Devaluation initially worsens trade deficits but should later improve them as exports rise. Nigeria, however, lacks the productive base to benefit from it: power supply crises and industrial stagnation prevent an export surge. Therefore, the country remains stuck in the “dip,” facing higher import costs without the compensating rise in (non-oil) exports. For analysts who quibble about the timing of the reforms, a stable power supply and scalable industrial capacity are the apt indicators of readiness—and Nigeria was far from it in 2023 and not any closer in 2026.

Comparative history underscores the risks. Indonesia’s rupiah collapse in 1997–98 triggered a 13 per cent contraction in GDP and widespread poverty. Sri Lanka’s 2022 float, amid debt dependence, led to inflation above 50 per cent and sovereign default. Egypt’s 2024 devaluation, tied to IMF support, crushed its middle class. Nigeria’s trajectory echoes these crises.

Free‑market ideology assumes scalable productive capacity. Without reliable electricity, Nigeria cannot meet this condition. In this reality, subsidy removal and naira floatation have delivered not “market discovery” but economic destruction, testing the limits of Nigerians’ endurance. The petrol subsidy, despite its abuse, served as a social safety net; its removal without alternatives has deepened precarity. In the absence of visible hands ensuring that grid electricity remains on, the “invisible hand” of the market is strangling the productive economy rather than guiding it.

We now turn our critical policy evaluation to excessive fiscal deficits. As the government contemplates fuelling economic growth with debt, rational consumers may anticipate future taxes to pay for today’s public debt. This reflects the Ricardian Equivalence hypothesis, which suggests that expansionary fiscal policy without a rise in revenue may lead households to save rather than spend. 

Two interconnected concerns about debt-fuelled expansionary government spending are that it raises interest rates and crowds out private-sector credit. Nigeria is not unique in mistaking deficit spending for growth: Argentina’s repeated cycles of unsustainable fiscal expansion led to hyperinflation and currency crashes, while Sri Lanka’s sweeping tax cuts, alongside high spending, triggered reserve depletion, inflation above 50 per cent, and sovereign default. The burdens of similar fiscal missteps by the Tinubu administration are being borne by Nigerians, leaving the economy seemingly standing while living standards collapse. The precariousness of the situation is undeniable.

An example from Ghana (2022-23) brings the issue closer to home. The country’s expansive budgeting to fund infrastructure projects pushed the debt-to-GDP ratio above 90 per cent, forcing a $3 billion IMF bailout and a Domestic Debt Exchange Programme (DDEP) that severely eroded private savings. Nigeria faces a similar fiscal tipping point with its 2026 'Consolidated' budget, where debt servicing is projected to consume approximately 45–50 per cent of projected revenue, possibly reaching 70 per cent of actual revenue. The country has reached a fiscal tipping point from which it urgently needs to retreat.

To avoid condemning prejudice by completely denying President Tinubu any accolade for his “bold” reforms, one must acknowledge that the real GDP growth rate, estimated at 3.87 per cent in 2025, signals a recovery, even if it is below historical highs. However, this is a costly gain, given the all-time record debt level that catalysed it. Also, the CBN’s reserves reached a 13-year record of over $50 billion in February 2026. But this was fuelled by ‘hot money’ taking advantage of high interest rates, with the Monetary Policy Rate at 26.5 per cent in April 2026. In a volatile global geopolitical environment, accentuated by shifting investor sentiment, the Foreign Portfolio Investment (FPI) that has driven accretion to the CBN’s reserves could reverse in short order.

The gains from the reforms remain not only fragile but also vulnerable to catastrophic reversal. In any case, they have left most citizens worse off than they were before June 2023.

 Fixing the Mess

Nigeria has reached a critical point in its economic mismanagement, where real solutions are difficult and may not leave everyone unaffected by genuinely visionary reform. The country is politically charged, not simply because the next general election is less than one year away. Political volatility has persisted since President Yar’Adua died in office in 2010, leading to the subversion of presidential rotation between the North and South. This has made it very difficult to forge consensus on major reforms. President Tinubu recognised this and therefore didn’t seek public approval for his reforms, thereby denying them a necessary success factor. 

Nevertheless, certain reform imperatives are now glaring. First, there is a need to end overlapping budgets. The Fiscal Responsibility Act mandates that government MDAs retire unspent budgets at the end of the fiscal year, which is December. This safeguard against fiscal indiscipline has been eroded by the farce of running two budgets concurrently into the middle of the current year. Unspent budgets should be retired and, if necessary, reappropriated, even to complete the originally designated projects. This will restore fiscal discipline and improve project delivery.

Second, appropriation laws should be tightened and given legal teeth to bite in cases of criminal infractions. Diverting duly appropriated funds should be treated as a high crime and a ground for impeachment. Perpetrators who don’t enjoy prosecutorial immunity should be duly prosecuted. 

Third, the country’s debt sustainability should be underpinned by the debt-to-revenue ratio rather than the debt-to-GDP ratio. The former is both safer and more prudent, whereas the latter can shift overnight amid a rapid currency devaluation.

Conclusion

The APC government’s experiment with deficit budgeting has largely failed. Excessive reliance on borrowing, fiscal indiscipline, and corruption have strained the economy and are now seriously draining revenue through debt-service obligations. Wagner’s Law reminds us that public spending should grow with income, not as an attempt to conjure it from a revenue vacuum. 

Nigeria has no headroom left to borrow sustainably. To escape its fiscal cul-de-sac, the government must replace deficit-driven illusions with reforms that expand revenue, restore fiscal discipline, and rebuild the productive base. Only then can public spending become a true engine of growth rather than a tax on survival.

Jide Akintunde, Managing Editor of Financial Nigeria publications, is the author of the forthcoming book Youth Breed: How Generations of Nigerian Youth Impact Their Country, due for release in June 2026.