World Bank Projects 4.2% Growth for Nigeria as Fuel Costs Rise Amid Iran Conflict

Nigeria’s economy is projected to grow by 4.2 percent in 2026 despite rising global uncertainty driven by the ongoing Iran conflict, according to the World Bank.

The institution said economic activity has remained resilient in the first half of the year, with business expansion continuing even as higher global oil prices push inflation upward.

Fiseha Haile, the World Bank’s Lead Economist for Nigeria, stated that while the U.S.-Israel-Iran conflict has increased price pressures, output across key sectors has remained largely stable.

“Overall business activity has been expanding over the past few months, suggesting the impact on growth has been relatively contained. But the shock is still being felt through higher inflation,” Haile said.

Nigeria’s recent economic reforms under President Bola Tinubu have played a central role in stabilising the macroeconomic environment. These include the removal of fuel subsidies, exchange rate adjustments and tax reforms aimed at improving fiscal sustainability.

Despite these measures, inflation remains a key concern. The inflation rate declined to 15.06 percent in February from about 33 percent in December 2024, but has since come under renewed pressure due to rising fuel costs linked to the Middle East conflict.

Fuel prices have increased by more than 50 percent during the crisis, feeding into transportation, food and production costs across the economy.

The World Bank noted that easing restrictions on fuel imports could help moderate inflationary pressures.

The institution warned that persistently high inflation poses a direct risk to household incomes and could slow progress in poverty reduction.

Nigeria’s external position has improved in recent months, supported by rising foreign exchange reserves and reduced currency volatility.

However, tighter global financial conditions continue to threaten capital inflows, borrowing costs and remittance flows.

Fiscal performance has also shown signs of improvement. The fiscal deficit stood at 3.1 percent of GDP in 2025, lower than levels recorded prior to recent reforms.

The debt-to-GDP ratio also declined for the first time in a decade, reflecting stronger fiscal management and exchange rate valuation gains.

The World Bank advised policymakers to sustain tight monetary policy, avoid broad subsidy regimes and save windfall revenues from higher oil prices to strengthen fiscal buffers.

Beyond macroeconomic stability, the institution highlighted structural challenges, particularly in human capital development.

Nigeria continues to face weak social indicators, including high child mortality rates and widespread developmental gaps among children.

The World Bank stressed the need for a coordinated and sustained approach to early childhood development, covering healthcare, nutrition, sanitation and foundational education.

While the near-term growth outlook remains positive, the balance between rising oil-driven revenues and inflationary pressures will be critical in determining Nigeria’s economic trajectory in 2026.