BY Mukhail Adetokunbo Abiru
Nigeria’s economic management has reached an important inflection point. After a difficult period of painful but necessary macroeconomic adjustment, there are now clearer signs that the foundations of greater stability are being established. Inflation has fallen substantially, the foreign exchange market is functioning with greater efficiency, external buffers have been rebuilt, the banking system has been recapitalized, investor confidence has improved and economic growth has strengthened. Against this background, two recent developments deserve particular attention: the Memorandum of Understanding between the Federal Ministry of Finance and the Central Bank of Nigeria on fiscal-monetary policy coordination, and the decision of the Monetary Policy Committee (MPC) to reduce the Monetary Policy Rate (MPR) by 350 basis points, from 26.5 per cent to 23 per cent.
I commend both developments. Taken together, they suggest that Nigeria’s economic policy conversation is gradually moving from emergency stabilization towards the more difficult task of converting macroeconomic stability into broad-based prosperity.
The signing of the Memorandum of Understanding between the Ministry of Finance and the Central Bank of Nigeria is particularly significant. The agreement provides for greater consultation, information sharing and joint assessment of policies between the fiscal and monetary authorities, with the stated objectives including inflation control, improved government borrowing and liquidity management, and protection of private-sector access to credit. Importantly, the initiative is intended to make coordination more institutional and less dependent on the personalities occupying public offices at any particular time. This is the right direction.
It goes without saying that fiscal policy and monetary policy are different instruments, operated by different institutions and governed by different mandates, but they ultimately operate on the same economy and affect the same citizens, businesses and investors. Fiscal policy influences aggregate demand through taxation, public expenditure and borrowing, while monetary policy influences financial conditions through interest rates, liquidity, credit conditions and the foreign exchange environment. It is therefore neither desirable nor realistic for the two arms of economic policy to operate in complete isolation.
Coordination, however, must not be confused with subordination. The independence of the Central Bank of Nigeria, particularly its operational independence in the conduct of monetary policy, must remain sacrosanct. The purpose of coordination should be to ensure that fiscal and monetary policies do not inadvertently work at cross-purposes.
This is why the new framework should go beyond the signing of an MoU. The collaboration should be institutionalized through a permanent Fiscal-Monetary Policy Coordination Council comprising the Ministry of Finance, the CBN and other relevant economic management institutions, with clearly defined terms of reference. Such a body should meet regularly, operate on the basis of transparent protocols and focus on macroeconomic forecasts, debt-management implications, liquidity conditions, inflation risks, foreign-exchange developments and the financing implications of major government programmes.
There should also be systematic sharing of high-quality data and economic projections. Differences in assumptions about oil prices, exchange rates, revenue performance, liquidity, debt-service costs and inflation can produce conflicting policy signals. A common macroeconomic information framework would help reduce such inconsistencies without compromising the confidentiality of monetary-policy deliberations.
Another useful reform would be to strengthen the transparency of the coordination process. The public should know the broad objectives and institutional responsibilities, even though the CBN’s confidential deliberations and market-sensitive information must remain protected. Parliamentary oversight can also play a constructive role by requiring periodic reports on macroeconomic coordination, without seeking to direct monetary-policy decisions.
The National Assembly, in particular, has an important constitutional role to play here. Through legislation, budget scrutiny and oversight, Parliament can help create the institutional environment in which fiscal discipline, debt sustainability and monetary-policy credibility reinforce one another. The objective should be a system in which coordination is predictable and rules-based, rather than dependent upon informal relationships between individual officeholders.
The Case for the 350-Basis-Point Rate Reduction
The MPC’s decision to reset the MPR at 23 percent from 26.5 percent is equally significant. The decision followed several months of monetary restraint. At its July 2026 meeting, the MPC had retained the MPR at 26.5 percent, after a 50-basis-point reduction in February. The latest decision therefore represents a much more substantial recalibration of the policy rate. The CBN simultaneously adjusted the standing facilities corridor while retaining the existing cash reserve requirements.
The timing is important. The Nigerian economy has spent a considerable period under aggressive monetary tightening. That tightening was painful, but it was necessary to restore macroeconomic credibility and address significant inflationary and external imbalances.
The results are increasingly visible: headline inflation has fallen to 15.39 percent in August 2026, from 15.43 percent in July and 23.14 percent a year earlier. Month-on-month inflation declined much more sharply, from 1.57 percent in July to 0.71 percent in August, while core inflation also moderated. The external position has strengthened materially. Nigeria’s overall balance of payments recorded a surplus of $3.51 billion in the second quarter of 2026, while the current-account surplus rose to $7.54 billion.
Foreign-exchange conditions have also improved. The gap between official and parallel-market rates has narrowed considerably, reflecting improved price discovery and greater liquidity in the formal market. In September, for example, the reported parallel-market premium was around 4.6 percent at one point, while the CBN has previously reported periods in which the gap between the formal and bureau-de-change markets remained below 5 percent.
External reserves have also been rebuilt impressively. Gross reserves stood at $55.25 billion as of September 18, 2026, according to the CBN, representing the highest level in about 18 years and sufficient to finance over 11 months of imports of goods and services.
The banking system is stronger as well. The CBN’s recapitalization exercise concluded with 33 banks meeting the new capital requirements and the sector raising approximately N4.65 trillion in fresh capital, with participation from both domestic and international investors. This has materially strengthened the industry’s capital buffers and its capacity to absorb shocks and support economic activity.
Investor confidence has likewise benefited from the broader reform process. Moody’s recently revised Nigeria’s sovereign outlook from stable to positive, citing improvements in the country’s external position, foreign-exchange market, reserves and monetary-policy transmission. S&P Global Ratings upgraded Nigeria to B in May 2026, while Fitch affirmed its B rating with a stable outlook in April.
Economic growth has also remained positive. Real GDP expanded by 4.43 percent year-on-year in the second quarter of 2026, up from 3.89 percent in the first quarter, reflecting improved performance in both the oil and non-oil sectors.
These developments should not be interpreted to mean that Nigeria’s economic challenges have disappeared. Inflation remains well above the levels Nigerians would consider comfortable; food prices remain a major concern; energy costs are volatile; unemployment and household purchasing power remain serious issues; and fiscal and structural constraints continue to limit the economy’s productive capacity. Indeed, renewed increases in international oil prices and domestic fuel costs illustrate how vulnerable the economy remains to external shocks.
But there is an important distinction between an economy in macroeconomic distress and an economy that has achieved sufficient stability to begin recalibrating policy. Nigeria increasingly belongs in the latter category.
From Stabilization to Welfare
This is where the next phase of economic management becomes critical. Macroeconomic stability is not an end in itself. It is a platform for improving the lives of citizens.
For the ordinary Nigerian, lower inflation, a more stable naira, stronger reserves and better sovereign credit assessments are important, but they become truly meaningful only when they translate into jobs, affordable credit, increased production, lower business costs, higher real incomes and improved household purchasing power. Consistent with the renewed Hope Agenda of President Bola Ahmed Tinubu, the central question before the fiscal and monetary authorities should therefore now be: How do we convert macroeconomic stability into improved welfare and productive economic activity?
This is particularly important because there are already signs that demand remains weak in important segments of the economy. The Manufacturers Association of Nigeria has reported that manufacturers were struggling with nearly N2 trillion in unsold inventory, with firms reportedly cutting prices and margins in an effort to move products amid weak consumer demand. This is a warning that deserves serious policy attention.
An economy cannot achieve sustainable growth simply by producing goods; there must be sufficient purchasing power and access to finance to enable those goods to be bought. If manufacturers cannot sell, they will reduce production. If production falls, employment suffers. If employment and incomes weaken, demand becomes even weaker. This can create a damaging cycle of low demand, reduced production and declining investment.
The significant reduction in the MPR is therefore welcome because, if effectively transmitted through the financial system, it can help reduce the cost of borrowing for businesses, improve access to credit, encourage investment and working-capital financing, reduce the cost of government domestic borrowing and stimulate aggregate economic activity.
But the crucial phrase is effective transmission. A reduction in the policy rate that does not translate into lower lending rates and increased productive credit would have only a limited impact on the real economy. Monetary policy must therefore move beyond the announcement of a lower benchmark rate to ensuring that the financial system actually transmits the benefit to households and businesses.
This is especially important following the successful recapitalization of the banking industry. The recapitalization was designed not merely to make banks bigger and safer, but also to create institutions with greater capacity to finance the expansion of the Nigerian economy. Banks raised N4.65 trillion in new capital precisely to strengthen resilience and enhance their capacity to support economic growth.
The next test, therefore, is credit deployment. If banks have stronger balance sheets but private-sector credit remains prohibitively expensive or inaccessible, an important objective of recapitalization and monetary easing will have been missed.
Building a Sustainably Lower-Interest-Rate Economy
Nigeria must, however, recognize that the CBN alone cannot create a permanently low-interest-rate economy. The policy rate is only one component of the price of credit. Sustainable reduction in lending rates requires an ecosystem in which inflation, fiscal deficits, government borrowing, bank operating costs, credit risk, infrastructure constraints and expectations all move in a favourable direction.
First, fiscal authorities must strengthen fiscal discipline. Government borrowing competes with the private sector for available domestic liquidity. A credible medium-term fiscal framework, stronger revenue mobilization and better expenditure efficiency will reduce pressure on domestic financing and create more room for private-sector credit.
Second, government must deepen the domestic debt market while extending the maturity profile of public borrowing. Predictable debt issuance and effective cash management can reduce volatility in the money market and help establish a more stable yield curve.
Third, the CBN should strengthen monetary-policy transmission. Banks must be able to price loans transparently, while competition in the financial system should be encouraged. Greater development of credit infrastructure, including reliable credit information and collateral-registration systems, can reduce the risk premium embedded in lending rates.
Fourth, Nigeria must address the structural cost of doing banking business. Electricity, security, technology, logistics and compliance costs ultimately enter into the price of financial services. A more efficient economy will produce a more efficient financial system.
Fifth, the country should expand targeted credit-guarantee and risk-sharing mechanisms for productive sectors such as manufacturing, agriculture, housing, small and medium-sized enterprises and export-oriented businesses. Such interventions should be transparent, commercially disciplined and designed to address identifiable market failures rather than become vehicles for politically directed lending.
A New Policy Compact for Shared Prosperity
The Nigerian economy now requires a new policy compact. The first phase of the reform process was necessarily about restoring macroeconomic stability and rebuilding confidence in an economy facing significant internal and external pressures. The next phase must be about consolidating those gains and translating them into shared prosperity and improved welfare for Nigerians.
I commend President Bola Ahmed Tinubu for the courage and determination with which his administration has pursued some of the most consequential economic reforms in recent decades. These reforms have not been without significant short-term costs, but the emerging evidence of lower inflation, stronger external reserves, improved foreign-exchange market conditions, a stronger banking system, improved investor sentiment and sustained economic growth suggests that the economy is increasingly responding to the reforms.
The reforms, however, must be sustained. Economic confidence is hard won but can be easily eroded by policy reversals. What Nigeria needs at this stage is continuity, predictability and institutional discipline. The objective should be to consolidate the foundations that have been laid while making the necessary adjustments to ensure that the benefits of reform are increasingly felt by ordinary Nigerians.
The hard work of stabilization has produced meaningful gains. The responsibility now is to preserve those gains, sustain the reform momentum of the Tinubu administration and ensure that macroeconomic stability becomes a durable foundation for investment, job creation, lower-cost finance and better livelihoods.
•Mukhail Adetokunbo Abiru is an Economist, Chartered Accountant and a Distinguished Senator of the Federal Republic of Nigeria. He currently chairs the Senate Committee on Banking, Insurance & Other Financial Institutions.