Nigeria’s Economy Set for 3.7% Q4 Growth as Fiscal Reforms Begin Bearing Fruit

Nigeria’s economy is poised to maintain a moderate growth trajectory in the final quarter of 2025, with the Gross Domestic Product (GDP) projected to expand by 3.7 percent, according to a comprehensive economic analysis released by Cowry Asset Management. The anticipated growth reflects the measurable impacts of fiscal and monetary reforms that are beginning to yield tangible results in revenue performance, exchange rate stability, and renewed investor confidence in Africa’s largest economy.

This optimistic projection was articulated by Johnson Chukwu, Managing Director of Cowry Asset Management Limited, in the firm’s Q3 2025 Nigeria Business Climate Report. The comprehensive analysis provides an in-depth examination of Nigeria’s economy in transition, carefully balancing the documented gains of recent policy reforms against the persistent challenge of sustaining long-term, inclusive economic growth that benefits all segments of Nigerian society.

Build the future you deserve. Get started with our top-tier Online courses: ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Let Serrari Ed guide your path to success. Enroll today.

Oil Production Recovery Anchors Growth Outlook

The positive outlook for Q4 2025 is fundamentally anchored on anticipated improvements in crude oil production, which remains the lifeblood of Nigeria’s economy and its primary source of foreign exchange earnings. Production levels are expected to rise to between 1.6 and 1.65 million barrels per day, representing a significant recovery from the depressed levels that have plagued the country in recent years.

This production increase is attributed to several converging factors. New local operators are progressively reopening previously shut-in wells that had been idled due to security challenges, operational difficulties, or economic viability concerns. The Nigerian Upstream Petroleum Regulatory Commission has been working to facilitate smoother transitions as indigenous companies take over operations from international oil majors who have been divesting from onshore and shallow water assets.

Operational efficiency improvements across the sector are also contributing to the anticipated production boost. Enhanced security measures in the Niger Delta region have reduced pipeline vandalism and oil theft, longstanding issues that have significantly undermined Nigeria’s production capacity. The Nigerian National Petroleum Company Limited (NNPC) has implemented more rigorous monitoring systems and collaborated with host communities to protect critical oil infrastructure.

The importance of this oil production recovery cannot be overstated. Nigeria, as a member of the Organization of the Petroleum Exporting Countries (OPEC), has struggled to meet its production quotas in recent years, losing market share and revenue to other oil-producing nations. The anticipated production increase not only boosts government revenues but also signals to international investors that Nigeria is addressing the structural challenges that have hindered its oil sector.

Inflation Pressures Expected to Ease

One of the most significant projected developments for Q4 2025 is the anticipated moderation in inflation, which has been a source of considerable economic hardship for Nigerian citizens and businesses alike. After averaging over 22 percent in mid-year—placing substantial strain on household purchasing power and business profitability—inflation is projected to ease below the 20 percent threshold by December 2025.

This expected disinflation is attributed to several complementary factors. A stronger naira, resulting from improved foreign exchange management and steady inflows, reduces the cost of imported goods and inputs that constitute significant components of Nigeria’s consumer price basket. Nigeria remains heavily dependent on imports for everything from refined petroleum products to food items, machinery, and consumer goods, making exchange rate stability crucial for inflation management.

Steady foreign exchange inflows from improved oil revenues, diaspora remittances, and foreign portfolio investments are expected to continue supporting the naira’s relative stability. The Central Bank of Nigeria (CBN) has implemented more transparent and market-oriented foreign exchange policies, moving away from the multiple exchange rate regime that previously created distortions and encouraged rent-seeking behavior.

However, achieving and sustaining inflation below 20 percent will require continued vigilance and complementary policies. Supply-side constraints, including inadequate transportation infrastructure, insecurity affecting agricultural production in key food-producing regions, and elevated energy costs due to subsidy removals, continue to exert upward pressure on prices.

External Reserves Projected to Strengthen

Chukwu projects Nigeria’s external reserves to increase to approximately $46.5 billion by year-end, representing a meaningful buffer against external shocks and a vote of confidence in the country’s macroeconomic management. This reserve accumulation is expected to be driven by moderate oil receipts as production recovers and disciplined Central Bank interventions in the foreign exchange market that avoid depleting reserves to defend arbitrary exchange rate targets.

External reserves serve multiple critical functions for the Nigerian economy. They provide the country with import cover—the ability to continue financing essential imports even during periods of reduced export earnings. They signal creditworthiness to international investors and rating agencies, influencing Nigeria’s borrowing costs in international capital markets. They also provide the Central Bank with ammunition to smooth excessive volatility in the foreign exchange market without fighting fundamental market forces.

The projected reserve level of $46.5 billion, while representing an improvement from recent lows, remains modest relative to Nigeria’s economic size and import requirements. International best practices suggest that emerging market economies should maintain reserves equivalent to at least three months of imports, and Nigeria’s import intensity means that building even larger reserve buffers would be prudent.

Naira Exchange Rate Outlook

The naira is forecast to trade within the range of N1,280 to N1,350 per dollar in Q4 2025, reflecting improving market confidence, reduced speculative demand, and more balanced supply-demand dynamics in the foreign exchange market. This relatively stable range contrasts sharply with the dramatic volatility and depreciation experienced in previous years when the naira weakened from around N400 per dollar to exceed N1,500 at various points.

The projected exchange rate stability reflects several positive developments. Improved crude oil production increases dollar inflows to the economy. Enhanced transparency in foreign exchange allocation reduces corruption and ensures that available dollars reach legitimate users. Reduced import demand, partly reflecting economic adjustments and partly due to policy measures encouraging local production, eases pressure on the naira.

“We expect modest growth in the final quarter as fiscal and monetary adjustments begin to stabilise the economy. However, sustaining this momentum requires productivity-led growth and private sector resilience,” Chukwu emphasized, highlighting that exchange rate stability alone is insufficient without accompanying real sector development.

The Central Bank’s approach to exchange rate management has evolved significantly under recent leadership. Moving away from the previous strategy of defending a particular exchange rate level through massive reserve depletion and capital controls, the CBN has adopted a more flexible, market-responsive approach. This shift, while initially causing significant adjustment pain through rapid depreciation, has begun creating conditions for sustainable exchange rate stability based on fundamental economic factors rather than artificial interventions.

Fiscal Reforms Driving Revenue Improvements

On the fiscal front, Cowry’s report attributed Nigeria’s economic rebound to comprehensive reforms in tax administration and improved transparency in public finance management. The Federal Inland Revenue Service (FIRS) has implemented more sophisticated tax collection mechanisms, expanded the tax base by bringing previously informal economic activities into the formal system, and enhanced compliance through both technological improvements and stricter enforcement.

Policy harmonization across different levels of government has reduced conflicting tax demands on businesses, a longstanding complaint from the private sector. Multiple taxation by federal, state, and local governments has historically increased the cost of doing business in Nigeria and encouraged tax evasion. Recent efforts to rationalize these overlapping tax claims represent important progress, though significant work remains.

Tighter fiscal coordination between federal and subnational governments has improved overall fiscal discipline. The Federation Account Allocation Committee (FAAC), which distributes revenue among federal, state, and local governments, has reported more transparent operations and reduced leakages.

Data from FIRS and FAAC demonstrated significant increases in corporate tax, Value Added Tax (VAT), and petroleum profit tax receipts in 2025, pushing total federation allocations to record levels compared to 2024. Between January and August 2025, monthly FAAC disbursements grew by double digits, reflecting stronger non-oil revenue generation and improved fiscal discipline across all government tiers.

However, the report issued an important cautionary note: “heavy taxation in an unproductive economy” could erode business competitiveness and weaken consumer spending. This warning highlights a fundamental tension in Nigeria’s current economic management—the need to increase government revenue to fund essential public services and infrastructure while avoiding overtaxation that stifles private sector growth.

The Productivity Challenge

“Revenue growth is encouraging, but without a parallel boost in productivity, infrastructure, and export competitiveness, fiscal gains may not translate into sustainable economic transformation,” the Cowry report cautioned, identifying what many economists consider Nigeria’s fundamental economic challenge.

Nigeria has long suffered from a productivity paradox. Despite a large and growing population, abundant natural resources, and significant entrepreneurial energy, productivity levels remain low across most sectors. Agricultural yields lag far behind international standards. Manufacturing capacity utilization hovers around 50 percent. Service sector productivity, while higher than in agriculture or manufacturing, still trails regional competitors.

Infrastructure deficits represent a critical constraint on productivity. Inadequate and unreliable electricity supply forces businesses to invest in expensive backup generators, increasing costs and reducing competitiveness. Poor road networks raise transportation costs and cause significant product losses, particularly for perishable agricultural goods. Port congestion extends cargo clearing times and raises import costs. Limited broadband penetration constrains digital economy development.

Export competitiveness remains weak outside the oil sector. Nigeria’s non-oil exports constitute a tiny fraction of GDP, reflecting both infrastructure challenges and policy environments that have historically favored import-dependent consumption over export-oriented production. While neighboring countries have built export industries in agriculture, light manufacturing, and services, Nigeria continues to import most manufactured goods despite having a domestic market larger than many of those competitors combined.

One decision can change your entire career. Take that step with our Online courses in ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Join Serrari Ed and start building your brighter future today.

Policy Reform Implications

The report described 2025 as a defining year for Nigeria’s economic rebalancing, a characterization reflecting the dramatic policy shifts implemented by President Bola Tinubu’s administration since taking office. Recent policy reforms—from exchange rate unification to fiscal tightening and subsidy removals—have enhanced short-term macroeconomic stability but created significant adjustment challenges for households and businesses.

The removal of petrol subsidies, while financially necessary given unsustainable budget costs, triggered immediate inflationary pressures and reduced household purchasing power. Exchange rate unification, though essential for eliminating rent-seeking and distortions, caused sharp depreciation that raised import costs. These reforms, while economically sound in principle, imposed significant short-term pain on Nigerians already struggling with high unemployment and poverty rates.

The Cowry analysis emphasized that these reforms must now be complemented by measures that expand productive capacity—the ability of the economy to actually produce more goods and services. Macroeconomic stability, while necessary, is insufficient for transformational growth. Nigeria needs accompanying microeconomic reforms that improve the business environment, enhance infrastructure, strengthen education and skills development, and attract both domestic and foreign investment into productive sectors.

Learning from Asian Economic Miracles

The analyst urged policymakers to maintain reform consistency while improving the ease of doing business and promoting industrial diversification. Drawing lessons from Asian economies that achieved rapid growth through productivity-led and export-oriented strategies provides instructive examples for Nigeria.

Countries like South Korea, Malaysia, and Vietnam transformed from low-income to middle-income or high-income status within a generation by focusing relentlessly on productivity growth, export competitiveness, and human capital development. These countries invested heavily in education, built world-class infrastructure, created business-friendly regulatory environments, and pursued deliberate industrial policies that moved their economies up the value chain.

The World Bank and other development institutions have long advocated for Nigeria to adopt similar approaches, though implementation has proven challenging due to political economy constraints, vested interests benefiting from the status quo, and institutional weaknesses.

Nigeria’s size and natural resource endowments provide advantages that smaller countries lack, but also create complacency. Unlike resource-poor countries that had no choice but to develop manufacturing and service exports, Nigeria has been able to rely on oil revenues, reducing pressure to build broader economic competitiveness. Breaking free of this resource curse and building a diversified, productive economy represents Nigeria’s central long-term challenge.

Fiscal Sustainability Concerns

While celebrating revenue improvements, experts note that Nigeria’s fiscal situation remains fragile. Debt service costs consume a large proportion of federal government revenue, constraining spending on critical development priorities. The Debt Management Office has worked to improve debt sustainability, but elevated borrowing costs and limited access to concessional financing continue to strain public finances.

State governments vary widely in fiscal capacity and management quality. While some states have implemented impressive reforms and improved revenue generation, others remain heavily dependent on federal allocations and lack the capacity to deliver basic services. This heterogeneity complicates national economic management and creates uneven development outcomes across the federation.

Subsidy removal, while improving fiscal sustainability, has created political pressures for compensatory spending programs. The government has announced various palliative measures aimed at cushioning the impact on vulnerable populations, but implementation has been slow and effectiveness uncertain. Balancing fiscal discipline with social protection needs represents an ongoing challenge.

Private Sector Resilience and Investment Climate

The report’s emphasis on private sector resilience reflects recognition that sustainable economic growth ultimately depends on business investment and entrepreneurship rather than government spending alone. Nigeria’s private sector has demonstrated remarkable adaptability, surviving and sometimes thriving despite challenging operating environments characterized by infrastructure deficits, policy unpredictability, and regulatory burdens.

However, private investment levels remain below what Nigeria needs to achieve transformational growth. Foreign direct investment, while recovering from pandemic lows, remains modest relative to the economy’s size and potential. Domestic investment is constrained by limited access to long-term financing, high interest rates, and uncertainty about policy direction.

Improving the investment climate requires addressing multiple binding constraints simultaneously. Businesses consistently cite electricity supply, transportation infrastructure, access to foreign exchange, multiple taxation, port efficiency, and contract enforcement as major concerns. While progress is being made in some areas, comprehensive reform across all these dimensions remains elusive.

The Nigerian Investment Promotion Commission has worked to attract and facilitate investment, but must operate within broader policy and institutional constraints that limit its effectiveness. Creating a truly competitive investment destination requires sustained commitment and coordination across multiple government agencies and levels.

Agricultural Sector Considerations

Agriculture, which employs the largest share of Nigeria’s workforce and contributes significantly to GDP, faces its own unique challenges and opportunities. Insecurity in major food-producing regions has displaced farmers and reduced cultivated acreage, contributing to food inflation. Climate change is introducing new unpredictability into rainfall patterns and growing seasons. Land tenure issues limit investment in agricultural productivity improvements.

Yet agriculture also presents significant growth opportunities. Nigeria’s large domestic market provides assured demand for food products. Regional and international markets offer export potential for crops like cocoa, cashews, and sesame. Appropriate policies supporting mechanization, improved inputs, extension services, and value chain development could dramatically increase agricultural productivity and rural incomes.

The Federal Ministry of Agriculture and Food Security has announced various programs aimed at boosting production, but implementation capacity and funding remain persistent challenges.

The Path Forward

The report concluded that Nigeria is on a path of transition, noting that with inflation easing, oil output rising, and fiscal revenues expanding, the immediate economic indicators are pointing in positive directions. However, the critical next phase involves converting these reform-driven stabilization gains into broad-based economic development that creates employment, reduces poverty, and improves living standards for ordinary Nigerians.

This transformation requires moving beyond macroeconomic management to address fundamental structural issues. Infrastructure development must accelerate dramatically. Education and healthcare systems need comprehensive strengthening to build human capital. Regulatory and institutional quality must improve to reduce transaction costs and uncertainty. Economic diversification must shift from aspiration to reality, with manufacturing and services growing to rival oil as sources of output and exports.

Conclusion: Critical Juncture for Nigeria’s Economic Future

Nigeria stands at a critical juncture in its economic history. The reforms implemented over the past year have created preconditions for sustainable growth by addressing macroeconomic imbalances, improving fiscal sustainability, and enhancing market mechanisms. The projected 3.7 percent GDP growth in Q4 2025 represents encouraging progress, though it remains modest relative to what Nigeria needs to absorb its rapidly growing labor force and make meaningful progress on poverty reduction.

The challenge now is sustaining reform momentum while expanding focus from stabilization to transformation. As Johnson Chukwu emphasized, modest growth is encouraging but insufficient. Nigeria must achieve productivity-led growth driven by private sector dynamism, supported by public infrastructure and human capital investment, and guided by consistent, business-friendly policies.

The international community, investors, and Nigeria’s own citizens will be watching closely to see whether the country can convert this moment of tentative stabilization into sustained progress toward realizing its enormous economic potential. With the right policy mix, sustained political commitment, and effective implementation, Nigeria could finally begin the transformation that has eluded it for decades. The coming quarters will reveal whether the current reform trajectory represents genuine turning point or another false dawn in Nigeria’s long quest for economic development.

Ready to take your career to the next level? Join our Online courses: ACCA, HESI A2, ATI TEAS 7 , HESI EXIT  , NCLEX – RN and NCLEX – PN, Financial Literacy!🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

Track GDP, Inflation and Central Bank rates for top African markets with Serrari’s comparator tool.

See today’s Treasury bonds and Money market funds movement across financial service providers in Kenya, using Serrari’s comparator tools.

Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

7th November, 2025