Nigeria’s economy is projected to expand between 3.6 and 4 percent in annual growth in 2026, driven by non-oil sector expansion, policy stability, and renewed investor confidence, according to FSDH Merchant Bank.
“As reforms mature and external headwinds ease, 2026 could mark the start of Nigeria’s next growth phase, one defined less by crisis management and more by resilience, productivity, and investor confidence,” the Lagos-based financial services provider said in its newly released report titled “From Reform to Resilience: Unlocking Nigeria’s Next Growth Chapter.”
Since President Bola Tinubu removed the unsustainable fuel subsidies and floated the naira more than two years ago, Africa’s most populous nation has begun to heave a sigh of fiscal relief that’s now seen inflation drop to its lowest in about three years and the naira holding firm.
That stability and commitment to reform have also seen the country’s gross domestic product grow at its fastest pace in four years in the second quarter of 2025 to 4.23 percent, driven by growth in the oil sector.
FSDH believes that the removal of Nigeria from the Financial Action Task Force grey list will further strengthen investor confidence, enhance financial transparency, and engender growth in key sectors.
To consolidate these gains, the bank recommends deepening investment in productive sectors such as manufacturing, agribusiness, and ICT, accelerating the monetisation of public assets through public-private partnerships, improving fiscal efficiency, and leveraging the ongoing banking recapitalisation to expand credit access.
It also urges that fiscal savings be channeled toward infrastructure, education, and human capital development to translate macroeconomic stability into inclusive, sustainable growth.
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Inflation, Naira seen moderating in 2026 as MPR slows to 24%
According to the report, the inflation rate is expected to moderate further to between 17 and 19 percent in 2026, from 18 percent it currently stands in September 2025, aided by a more stable exchange rate, easing food prices, and sustained disinflation momentum.
The Naira, which closed October 2025 at N1,421 per dollar – the strongest it’s been since the introduction of the Electronic Foreign Exchange Matching System in December last year, is forecast to remain broadly stable within the N1,520–N1,590 range in 2026, supported by rising reserves and improved market transparency.
“In its moderate-case projection, adopted as the base scenario, FSDH assumes an average oil price of $70 per barrel and production at 1.62 million barrels per day, resulting in 3.8 percent GDP growth, inflation at 20.9 percent, external reserves of $39.6 billion, and an average exchange rate of N1,523 per dollar,” the report notes.
“A best-case outlook, driven by stronger oil prices and improved revenue implementation, could see growth reach 4.4 percent, while a worst-case scenario marked by oil market weakness and domestic supply disruptions could slow expansion to 2.2 percent and push inflation to about 29 percent.”
On fiscal and monetary dynamics, the report highlights a gradual shift from aggressive monetary tightening to cautious easing, following the Central Bank of Nigeria’s (CBN) first interest rate cut in five years in September 2025, when the Monetary Policy Rate was lowered from 27.5 percent to 27 percent.
FSDH anticipates further moderation in the MPR to between 21 and 24 percent in 2026, conditional on sustained price stability and resilient foreign exchange inflows.
“While the policy easing is expected to relieve borrowing costs, the bank notes that monetary transmission remains weak, with wide spreads between the policy rate, deposit rates, and market lending rates, underscoring the need for stronger coordination and credibility in monetary signaling,” FSDH said.
Real interest rates have turned positive, reflecting a more credible policy stance and renewed appetite for Naira assets. Capital market sentiment has strengthened, with bond yields easing from nearly 20 percent in late 2024 to around 16 percent, while the Nigerian Exchange All Share Index has gained more than 50 percent year-to-date, supported by stable macro conditions and rising corporate earnings.
The report raises concerns over Nigeria’s debt profile, which surged to N152 trillion by mid-2025, driven by exchange rate adjustments and fresh borrowing, even though the debt-to-GDP ratio remains moderate at about 40 percent.
It noted that external debt servicing, which reached a record $4.7 billion in 2024, continues to strain fiscal space, absorbing close to nine percent of export receipts.
FSDH, however, sees a bright spot in the 15 percent import duty on petrol and diesel introduced in October 2025 and the Capital Gains Tax reform taking effect in January 2026, which it said are expected to broaden the tax base, promote fairness, and strengthen fiscal sustainability, even if they create short-term price pressures.