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Nigeria’s recent economic gains could be threatened by increased government spending ahead of the 2027 elections and a slowdown in reforms as political activities gather pace, the Nigerian Economic Summit Group (NESG) has warned.
In its 2026 Half-Year Outlook Report, launched at the NESG Industrialisation and Competitiveness Forum in Abuja which was monitored by Daily Sun on Wednesday, the think-tank said pre-election fiscal excesses could undermine the consolidation gains achieved after two years of difficult reforms, crowd out private sector credit, and erode investor confidence.
“Election-related uncertainty remains a key downside risk to Nigeria’s growth outlook,” the report stated. As political activities intensify ahead of the 2027 General Elections, reform momentum could weaken while fiscal discipline comes under pressure from increased pre-election spending.”
The warning comes as Nigeria’s economy shows signs of sustained recovery. Gross domestic product expanded by 3.9 per cent in the first quarter of 2026, up from 3.1 per cent in the same period last year, driven largely by non-oil sectors. The Purchasing Managers’ Index (PMI) rose to 53.3 points in the second quarter from 52.8 points in Q1, indicating faster business expansion.
However, NESG cautioned that these gains remain fragile and could be reversed if policymakers prioritise short-term political considerations over long-term structural reforms.
According to the report, heightened pre-election spending typically manifests in higher recurrent expenditure, including subsidies, transfers, public sector wages, and constituency projects, often at the expense of capital investment.
Such fiscal slippage would widen the budget deficit, forcing the government to increase domestic borrowing. This, in turn, would push up interest rates and crowd out private sector access to credit, undermining the very business activity that has driven the non-oil recovery.
Higher debt-service costs would also limit fiscal space for critical capital expenditure and social spending, weakening the “inclusion” pillar of the government’s industrialisation agenda.
The think-tank also flagged the risk of “reform fatigue”, a scenario where politicians and technocrats slow or reverse painful but necessary measures, such as fuel pricing, power tariffs, and tax reforms, to avoid short-term political backlash.
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Mixed signals on foreign exchange policy, monetary tightening, and public sector restructuring could emerge as different arms of government chase competing political narratives, creating policy inconsistency that deters investment.
“Delayed structural reforms reduce investor confidence and increase the risk premium on Nigerian assets,” the report noted. “For investors, the fear is not just one bad budget, but a pattern of stop-go reforms that erode credibility built since 2024.”
Election-driven fiscal expansion could also reignite inflationary pressures through higher aggregate demand in an economy still constrained by insecurity and climate shocks. If the Central Bank of Nigeria (CBN) faces pressure to accommodate government borrowing, monetisation of deficits could further fuel price growth.
Even if inflation averages 15.5 per cent in 2026 as projected, the risk remains of a spike in 2027 if pre-election spending coincides with supply disruptions from insecurity or climate events. Renewed foreign exchange pressures could also emerge if imports surge on the back of government and campaign spending while confidence wavers.
The stabilisation gains, improved PMI, business activity in expansion territory, and rising external reserves – rest on a narrative of policy consistency. If markets perceive a shift towards short-term political spending over structural reforms, portfolio inflows could reverse quickly, especially if global conditions tighten. Foreign direct investment plans in manufacturing and infrastructure may also be delayed or scaled back.
In NESG’s assessment, this is how election-related uncertainty can “undermine macroeconomic stability, delay structural reforms, and reduce investor confidence,” directly threatening the consolidation phase after years of stabilisation efforts.
The report projects full-year GDP growth of about 4.2 per cent in 2026, with external reserves expected to rise to approximately $53 billion by year-end. However, these projections assume continued policy discipline, an assumption that could be tested as the 2027 election cycle heats up.
For Nigeria to sustain its industrial transformation agenda, NESG urged that policymakers may need to resist the temptation of pre-election populism and maintain focus on structural reforms that improve productivity, lower business costs, and crowd in private investment.
“The consolidation phase demands the same courage, consistency, and commitment that characterised the stabilisation efforts,” the report concluded. “Nigeria cannot afford to pause or retreat.”
