Nigeria’s Budget Sets Ambitious Revenue, Spending Targets –Fitch
Nigeria’s 2026 budget broadly aligns with Fitch Ratings’ fiscal deficit forecast, partly because analysts expect that revenue and expenditure are likely to miss targets.
This reflects long-term challenges to raising both oil and non-oil revenues and persistent under-execution of budgeted capital spending, Fitch Ratings says. “We expect revenue to undershoot despite new tax reform laws effective from 1 January 2026, as these face near-term execution risks.
“Expenditure will also fall short, despite election-related spending pressures. The government has allocated about 40% of expenditure to capex, but the execution rate for capital projects is usually low in Nigeria”, Fitch said.
Budget documents published on 8 January envisage a deficit of NGN25.3 trillion (about USD17.8 billion), which analysts estimate at 4.5% of GDP in 2026, up from 2.9% in 2025.
Analysts said this is broadly in line with forecast of 4.6%, which would lift public debt to about 39% of GDP with budget assumptions that are generally more optimistic than Fitch’s forecasts.
The budget is based on oil at USD64.85 a barrel, production of 1.84 million barrels a day and real GDP growth of 4.7%, compared to Fitch’s assumption of USD63/bbl, 1.74 million barrels a day and 4.2%.
The budget’s exchange-rate projection is USD/NGN1,400, compared to NGN1,474 forecast by Fitch, which combined with higher oil price and production assumptions, means the implied revenue appears ambitious.
The budget contains new tax laws that aim to lift revenue to 14.6% of GDP in the first year of implementation, against 10.9% forecasted by Fitch, up only 1.2pp from 2025 estimate.
Analysts stated that measures include a more progressive personal income tax for high income earners, a 4% development levy on the assessable profits of larger companies, and tighter compliance enforcement for companies and individuals.
Fitch believes that raising fiscal revenue is central to the government’s reform agenda and an important consideration for Nigeria’s sovereign credit profile.
However, weak governance, a large informal sector, capacity gaps and enforcement challenges will weigh on the implementation of new tax laws, while planned tax relief will limit non-oil tax revenue gains, keeping Nigeria’s revenue structurally low, and well below the ‘B’ median of 18.7%.
Recurrent spending will remain high, Fitch said, driven by increased security, debt-servicing and personnel costs, and expenses ahead of the 2027 elections.
“We expect capex execution to remain weak. The budget proposes NGN23.2 trillion or 4.6% of projected 2026 GDP for capex, nearly 1pp below the 2025 allocation
“… but we still expect this will not be achieved given a poor capex execution record: only 26% of capex was implemented in first seven month in 2025, and the 2024 budget target was under-executed by 16%, with the implementation period extended to December 2025”.
The authorities plan to finance the deficit largely from the domestic market, which may slow the decline in yields despite expectation of lower policy rates, Fitch said. With structurally low revenue, analysts expect interest/revenue to remain high at over 30%, constraining fiscal space.
Fitch affirmed Nigeria’s ‘B’/Stable sovereign rating on 10 October 2025. Greater confidence in the durability of reforms, including fiscal consolidation, could put upward pressure on the rating.
However, a significantly larger deficit than our projection could both complicate macroeconomic stabilisation and undermine policy credibility.
The rating is supported by Nigeria’s large economy, a relatively developed and liquid domestic debt market, large oil and gas reserves, and an improved monetary and exchange-rate policy framework that has supported disinflation, although inflation remains far above the ‘B’ median. Naira Drops at Official Window as 2026 FX Projections Emerge
