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Daud Olatunji
Nigeria’s fiscal deficit is projected to widen to 3.5 per cent of Gross Domestic Product in 2026 from 3.1 per cent in 2025, as rising capital expenditure by state governments and anticipated pre-election spending threaten to outweigh gains from increased government revenues, the World Bank has warned.
The bank also cautioned that mounting personnel costs, debt-servicing obligations and other expenditure pressures at the federal level could reverse recent improvements in the country’s fiscal position.
The warning was contained in its latest Nigeria Development Update, titled Beyond the Federal Purse: How Higher Revenues Reshaped State Priorities, which examined the impact of increased government revenues on spending decisions across the country.
According to the report, improved oil earnings and higher allocations to governments have not eliminated the risk of a widening budget deficit, as spending by federal and state authorities continues to put pressure on public finances.
“Despite the narrower federal fiscal deficit in H1 2026, stronger capital spending by states alongside rising federal personnel, interest, and pre-election spending is expected to widen the consolidated fiscal deficit from 3.1 percent of GDP in 2025 to 3.5 percent in 2026, outweighing stronger revenues,” the bank said.
The consolidated fiscal deficit measures the gap between total revenue and expenditure across the federal, state and local governments, providing a broader picture of the country’s public finances.
The projection comes despite higher oil prices following the conflict in the Middle East, which the World Bank said had supported government revenues and strengthened Nigeria’s external position.
However, existing oil sales and financing commitments have limited the benefits available to the public purse.
The World Bank reported that Nigeria’s federal fiscal deficit narrowed from five per cent of GDP in the first half of 2025 to four per cent in the corresponding period of 2026.
It attributed the improvement to higher federation revenue distributions, stronger independent revenues generated by the Federal Government and slow reported execution of capital expenditure.
However, the bank warned that the improvement might not be sustained as expenditure pressures intensify in the second half of the year.
It noted that although Nigeria’s public debt remained moderate and was expected to decline gradually, the cost of servicing existing debt continued to restrict the government’s ability to finance development priorities.
The warning raises questions about how effectively governments at all levels will manage increased revenue allocations, particularly as political activities and preparations for future elections could place additional demands on public funds.
The bank’s assessment suggests that higher revenue alone may not guarantee improved fiscal stability without stronger expenditure controls and more disciplined budget implementation.
Despite the fiscal concerns, the World Bank said Nigeria’s economy continued to expand, with real GDP growing by 4.2 per cent in the first half of 2026.
The growth rate was slightly above the average of four per cent recorded in 2024 and 2025.
The institution said high-frequency economic indicators pointed to continued expansion through the third quarter of 2026, despite persistent pressure from higher fuel costs.
