The federal government has projected a significant decline in Nigeria’s inflation rate, targeting a reduction from the current 34% in 2024 to 15% by 2025. The projection is a key component of the 2025 draft national budget, which President Bola Tinubu presented to the National Assembly on Wednesday in Abuja.
According to the government, the anticipated reduction in inflationary pressure will be driven by several economic reforms and initiatives, including increased local petroleum refining, higher crude oil production, and enhanced agricultural output. The measures are designed to stabilise commodity prices, strengthen the naira, and build the nation’s foreign reserves.
One of the primary factors highlighted in the draft budget is the government’s commitment to improving national security, a move expected to have a transformative impact on agricultural productivity. Enhanced security measures in 2024 are projected to lead to a bumper harvest in 2025, thereby reducing food prices.
With food items being a significant component of Nigeria’s inflation basket, this improved agricultural output is expected to lower the cost of food, reduce the reliance on expensive imports, and ease inflationary pressures. The government anticipates that the ripple effects of these improvements will extend beyond the agricultural sector, benefiting the broader economy.
A pivotal element of the inflation-reduction strategy is the commencement of local refining of petroleum products. Nigeria’s historical reliance on the importation of refined petroleum has put immense pressure on foreign exchange reserves and contributed to high fuel prices.
By increasing domestic refining capacity, the government expects to cut down on the demand for forex to import petroleum products. Additionally, the exportation of refined products is anticipated to boost foreign exchange earnings, further stabilizing the naira. This, in turn, will have a positive impact on the prices of goods and services, reducing imported inflation.
The government’s strategy also hinges on an increase in crude oil production. Enhanced production levels, coupled with significant reductions in upstream production costs, are expected to increase revenue generation for the country.
This approach aims to bolster Nigeria’s foreign exchange reserves and enhance the country’s fiscal stability. A more robust forex reserve will support the Central Bank of Nigeria’s efforts to stabilize the naira, thereby curbing the inflationary effects of currency depreciation.
The draft budget also outlines measures to attract increased foreign portfolio inflows. By creating a more stable macroeconomic environment and implementing favorable policies, the government hopes to encourage greater foreign investments in Nigeria.
These inflows are expected to improve forex availability, ease pressure on the exchange rate, and contribute to lower costs for imported goods. With a more stable naira, the government foresees a significant reduction in imported inflation, further aiding the drive to achieve the 15% inflation target.
The federal government’s focus on reducing inflation aligns with its broader economic agenda to improve living standards and stimulate sustainable growth. President Tinubu, in his address to the National Assembly, emphasized the importance of these measures in ensuring a more resilient economy.
“By addressing the root causes of inflation—whether through boosting agricultural output, increasing local refining, or attracting foreign investments—we are building a stronger foundation for Nigeria’s economic future,” the President said on the sideline of the budget presentation.
Economic Implications
Analysts have agreed that achieving the targeted inflation rate of 15% in 2025 will require consistent implementation of these outlined measures. While the government’s optimism is anchored on robust economic reforms, challenges such as global market volatility and domestic policy execution will need to be managed effectively to realize the projections.
As the National Assembly deliberates on the 2025 budget proposal, stakeholders were hopeful that the proposed strategies will yield the intended results, bringing much-needed relief to Nigerians grappling with the effects of high inflation.