Nigeria’s Minister of Finance and Coordinating Minister of the Economy, Wale Edun, has hinted at possible interest rate cuts if the country’s inflation rate continues to decline. Speaking on the sidelines of the Abu Dhabi Sustainability Week, Edun noted that a sustained decrease in inflation would create room for additional rate cuts, which would help reduce borrowing costs and alleviate the government’s debt servicing burden.
Nigeria’s budget is currently strained due to high debt servicing costs, volatile oil revenues, and a widening fiscal deficit. A reduction in interest rates could help ease the pressure on the country’s public finances by reducing debt-servicing costs. Edun commended the Central Bank of Nigeria (CBN) for its efforts in curbing inflation, attributing the recent improvements to aggressive monetary tightening implemented over the past two years.
The CBN had increased its policy rate significantly in 2022 to rein in inflationary pressures, before implementing a 50 basis-point cut in September that brought the monetary policy rate to 27%. This move followed a sharp moderation in inflation from its late-2024 peak. However, the country’s fiscal outlook remains under pressure, with more than a quarter of the proposed 2026 budget allocated to interest payments.
Projected revenues are constrained by subdued oil receipts, leaving a budget deficit of roughly N24 trillion, or about 4.3% of GDP. Lower interest rates would not only support economic activity but also provide fiscal breathing room for the federal government by reducing the share of revenue devoted to debt servicing. With oil revenues remaining volatile and deficits widening, Nigeria’s fiscal sustainability is increasingly sensitive to movements in inflation and borrowing costs.
Edun noted that the government’s borrowing strategy would remain flexible and market-driven, with decisions on domestic and external issuances guided by pricing, timing, investor appetite, and adherence to debt limits. The administration is also intensifying efforts to boost revenue mobilization and reduce reliance on borrowing, particularly through structural reforms and improved efficiency in revenue collection.
The government is rolling out directives requiring ministries, departments, and agencies to halt cash collections and migrate fully to automated payment platforms to improve transparency and reduce leakages. Additionally, the federal government is counting on privatization proceeds, divestments by the Nigerian National Petroleum Company, and increased crude oil production to support budget funding. As Nigeria navigates its fiscal challenges, a potential interest rate cut could provide much-needed relief, but the country’s economic outlook remains closely tied to its ability to manage inflation and borrowing costs.
