The World Bank has warned that elevated fuel prices could slow the pace of poverty reduction in Nigeria, even as the country is expected to record stronger economic growth and a significant decline in inflation in 2026.
The warning was contained in the bank’s latest Africa Economic Update, which projects that Nigeria’s economy will grow by 4.3 per cent in 2026, up from 4.0 per cent recorded in 2025.
The World Bank expects economic growth to strengthen further to an average of 4.4 per cent annually in 2027 and 2028, with the improvement attributed to greater macroeconomic stability, increased investor confidence and a gradual recovery in private investment.
The report said the services sector would remain the main driver of economic growth, particularly financial services, information and communication technology, and real estate.
According to the World Bank, these areas have continued to benefit from digitalisation and resilient domestic demand, while agricultural activity is expected to recover in 2026.
However, growth in the industrial sector is projected to moderate, largely due to weaker momentum in oil production and manufacturing.
On inflation, the World Bank expects a substantial decline from 23.0 per cent in 2025 to 15.7 per cent in 2026. It projects that inflation could fall further to 12.2 per cent by 2028 as the impact of tighter monetary policy, exchange rate stabilisation and improved supply conditions becomes more evident across the economy.
The bank said lower inflation should gradually improve household purchasing power and support efforts to reduce poverty.
Despite the expected improvement, however, it warned that high fuel prices could limit the gains in living standards, particularly for low-income households.
The World Bank linked the elevated fuel prices to the ongoing conflict in the Middle East, noting that higher energy costs tend to place a disproportionate burden on poorer households because transportation and other essential goods and services become more expensive.
The report also noted that higher international oil prices could provide some benefits to Nigeria by boosting government revenues and strengthening the country’s external position through increased oil earnings.
The World Bank projected that Nigeria’s current account surplus would rise from 4.8 per cent of Gross Domestic Product, GDP, in 2025 to 6.0 per cent in 2026.
It expects the surplus to subsequently narrow to 3.4 per cent by 2028 as international oil prices return to more normal levels and demand for imports increases.
Despite the positive growth and inflation outlook, the bank cautioned that Nigeria remains exposed to several risks that could affect its economic recovery and ongoing reforms.
Among the major risks identified are tighter global financial conditions, a prolonged conflict in the Middle East, insecurity, climate-related shocks and disruptions to oil production.
The World Bank also identified increased government spending ahead of Nigeria’s 2027 general elections as a significant domestic risk to the economic outlook.
It warned that excessive pre-election spending could weaken the momentum of economic reforms and undermine the broader public support needed to sustain the government’s macroeconomic adjustment measures.
The report also examined Nigeria’s growing role in Africa’s emerging artificial intelligence ecosystem, while warning that infrastructure challenges could limit the country’s ability to fully benefit from the technology.
According to the World Bank, 44 per cent of surveyed firms in Nigeria and Kenya with at least 20 employees reported using AI technologies. This compares with 61 per cent of surveyed firms in the United States.
However, the bank said AI adoption in Africa remains relatively shallow, with only 36 per cent of AI-using firms in its developing-country sample using AI agents or AI for automation, compared with 56 per cent in the United States.
The World Bank identified unreliable electricity supply, limited internet access, high data and device costs, as well as inadequate computing infrastructure, as some of the major barriers to wider AI adoption.
The report suggests that while Nigeria’s improving macroeconomic conditions could support stronger growth and poverty reduction, sustained progress will depend on the government’s ability to manage rising costs, maintain reform momentum and address infrastructure and security challenges.
SOURCE: VANGUARD
