By Ayomide Otitoju
Nigeria’s economy grew by 4.2 per cent in the first half of 2026, up from 3.9 per cent in the corresponding period of 2025, as increased government revenues supported higher infrastructure spending by state governments, the World Bank has said.
The bank disclosed this in its latest Nigeria Development Update, titled “Beyond the Federal Purse: How Higher Revenues Reshaped State Priorities.”
According to the report, aggregate state revenues increased by about 93 per cent in real terms during the period, while expenditure rose by approximately 92 per cent.
Economic growth was driven largely by the services sector, supported by an improved contribution from agriculture. The expansion helped stabilise the poverty rate for the first time since 2019, although high inflation continued to weaken household purchasing power.
The World Bank said Nigeria’s economic performance had improved across growth, public finances and the external sector, but stressed that sustained reforms and better public services were needed to ensure that the gains benefited more Nigerians.
Between 2023 and 2025, gross federation revenues rose by 69 per cent in real terms, largely reflecting exchange-rate reforms, the removal of the petrol subsidy and improved revenue administration.
State governments recorded the largest increase in federation revenue flows. In addition to higher statutory allocations, they benefited from refunds, the settlement of outstanding federal obligations, dedicated intervention funds and stronger Value Added Tax collections.
The additional revenue supported increased capital expenditure, with capital spending rising from 46 per cent to 61 per cent of total state expenditure. Transport infrastructure recorded the largest increase, while spending on housing, agriculture and other investments intended to support economic growth also expanded.
However, expenditure on social services grew more slowly than spending on economic infrastructure.
The report showed that education’s share of total state expenditure declined from 14.9 per cent in 2021 to 12.1 per cent in 2025, while health spending remained broadly stable at around seven per cent. Social protection’s share increased from 1.4 per cent to 4.4 per cent over the same period.
World Bank Country Director for Nigeria, Mathew Verghis, said the increase in public revenues offered an opportunity to improve essential services and create jobs.
“The bold macroeconomic reforms have substantially increased fiscal revenues at the state level, providing a unique opportunity to improve infrastructure, education, healthcare, and water services, which are critical to creating more and better jobs,” Verghis said.
He added that efficient spending, accountability and improved service delivery would be necessary to ensure public resources translated into better living conditions.
The report also examined the effects of the conflict in the Middle East on Nigeria’s economy, noting that higher oil prices had boosted export earnings but also contributed to domestic cost pressures.
Nigeria’s current account surplus rose to $12 billion, equivalent to 7.1 per cent of gross domestic product (GDP), in the first half of 2026, compared with $8.6 billion, or 6.7 per cent of GDP, in the same period of 2025.
Higher oil prices also increased government revenues, although commitments under forward oil sales and oil-backed financing arrangements limited the benefits.
Gross external reserves exceeded $54 billion in September, supported largely by foreign portfolio inflows, while reforms improved the functioning of the foreign exchange market.
However, higher fuel prices following the outbreak of the conflict, combined with seasonal food price pressures, slowed progress in reducing inflation.
Headline inflation fell from 27.6 per cent in January 2025 to 15.2 per cent in December 2025, supported by tight monetary policy and reduced exchange-rate volatility.
The World Bank projected average economic growth of 4.4 per cent between 2026 and 2028. It also expects inflation to ease gradually to about 12 per cent by 2028, with poverty beginning to decline.
The report concluded that improved spending efficiency, stronger internally generated revenue and greater accountability by state governments would be critical to converting higher public revenues into better living standards.
