World Bank Urges Nigeria to Exercise Restraint with Pre-Election Spending to Safeguard Reforms

The World Bank has issued a strong caution to Nigeria regarding escalating pre-election spending, highlighting its potential to diminish the benefits derived from recent fiscal reforms and increased oil revenues. This advisory comes from the bank’s latest Nigeria Development Update, which emphasizes the importance of fiscal prudence to mitigate the impact of external shocks.

The report acknowledges that Nigeria's economy showed signs of strengthening in early 2026, attributing this to progress made from recent stabilization measures. However, it notes that poverty levels have not yet seen a corresponding decrease.

The bank specifically recommended that Nigeria's fiscal strategy should consider enhanced oil revenues as a temporary inflow, advising against excessive spending, especially in the lead-up to elections.

"Sustaining recent stabilization achievements will necessitate a disciplined and carefully managed policy approach to navigate the effects of geopolitical tensions," the World Bank stated. "Fiscal policy should treat elevated oil revenues as a temporary windfall, prioritizing the rebuilding of reserves over permanent increases in spending, particularly as elections approach."

The institution further elaborated, "As stabilization gains are solidified, continued policy discipline will be crucial amidst pre-election pressures and heightened global uncertainty."

Regarding potential inflationary pressures driven by global commodity price fluctuations, the World Bank suggested that revenue increases could be utilized for targeted support to vulnerable populations. The bank recommended maintaining tight monetary policy to control inflation and absorb external economic shocks.

"Should inflationary pressures escalate, a portion of the revenue gains could be directed towards supporting vulnerable households through specific, time- limited cash transfer programs, while avoiding inefficient price controls or broad subsidies," the bank advised. "Monetary policy must remain restrictive to curb inflation, and exchange rate flexibility should be preserved to absorb external shocks, with interventions limited to moderating excessive volatility."

This guidance follows PREMIUM TIMES' earlier reporting on the World Bank's projection that rising global oil prices could potentially increase Nigeria's headline inflation by approximately 3.1 percentage points, primarily due to higher transportation and other energy-related expenses.

To help manage potential inflation, the World Bank also recommended that the government consider reducing trade tariffs on food items, eliminate import surcharges, and foster competition within the Premium Motor Spirit (PMS) market.

"Easing supply-side constraints by reducing specific trade tariffs on food and essential inputs, removing import surcharges, and restoring competition in the PMS market would also contribute to moderating inflation," the report indicated.

The World Bank concluded by stating that clear and consistent policy communication would be vital for managing expectations and sustaining confidence in the face of an unpredictable global economic landscape.

Borrowing rates

Within the development update report, the World Bank also urged the Central Bank of Nigeria (CBN) to further decrease borrowing interest rates. The bank suggested that efforts to reduce inflation would allow the CBN to concentrate on managing naira liquidity effectively.

According to the World Bank, these measures would lead to improved credit allocation, reduced borrowing costs, and consequently, support the nation's economic expansion.

"Lower inflation also creates an environment conducive to enhancing monetary policy effectiveness. This includes the gradual reduction of banks’ cash reserve requirements, narrowing the interest rate differential between the Central Bank of Nigeria’s (CBN) lending and deposit facilities, and focusing open market operations on managing naira liquidity through short-term CBN bills."

"Reduced exchange rate volatility and positive real yields would further enable a gradual approach where banks are permitted to hold long net open FX positions and the intervention framework is clarified. This would foster more organic exchange rate stability and lessen dependence on FPI and CBN FX flows."

The World Bank emphasized that converting recent stabilization achievements into faster, sustained, and more inclusive economic growth will also depend on improving the business environment and making efficient investments in infrastructure and human capital.