By Onu Okorie

Nigeria’s economy recorded stronger growth in the first half of 2026 as higher oil earnings, improved public finances and a stronger external position provided relief following years of economic pressures, according to the World Bank’s latest Nigeria Development Update (NDU).
The report, titled “Beyond the Federal Purse: How Higher Revenues Reshaped State Priorities,” said real Gross Domestic Product (GDP) grew by 4.2 per cent in the first half of 2026, compared with 3.9 per cent and 3.5 per cent in the corresponding periods of 2025 and 2024 respectively.
Growth was driven mainly by the services sector, with agriculture also making a stronger contribution.
The World Bank said the recovery helped stabilise Nigeria’s poverty rate for the first time since 2019, although it stressed that sustaining reforms and improving public service delivery would be critical to translating the economic recovery into better living standards.
States receive bigger revenue windfall
A major focus of the report was the impact of increased government revenues on state finances.
According to the World Bank, gross federation revenues increased by 69 per cent in real terms between 2023 and 2025, largely reflecting exchange-rate reforms, the removal of the petrol subsidy and improvements in revenue administration.
States recorded the largest increase in federation revenue flows, benefiting from higher statutory allocations as well as refunds, settlements of longstanding federal obligations, intervention funds and stronger Value Added Tax collections.
The increase significantly expanded the fiscal space available to state governments.
Aggregate state revenues rose by about 93 per cent in real terms between 2023 and 2025, while state expenditure increased by about 92 per cent.
The report noted that states responded by increasing capital expenditure, with capital spending rising from 46 per cent of total expenditure to 61 per cent during the period.
Transport infrastructure received the largest increase in spending, followed by investments in housing, agriculture and other areas considered capable of supporting economic growth.
Human capital spending lags infrastructure
While spending on health, education and social protection also increased, the World Bank said the pace was slower than the growth in spending on economic infrastructure.
Education’s share of total state expenditure fell from 14.9 per cent in 2021 to 12.1 per cent in 2025, while health spending remained broadly stable at about seven per cent.
Social protection recorded an increase, with its share of total expenditure rising from 1.4 per cent to 4.4 per cent over the same period.
The World Bank said the spending pattern presented states with an opportunity to increase investment in human capital and essential public services, particularly as Nigeria seeks to create more productive jobs and reduce poverty.
“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,” the World Bank Country Director for Nigeria, Mathew Verghis, said.
He added that stronger spending efficiency, accountability and service delivery would be necessary to ensure that increased public resources translate into tangible improvements in the lives of Nigerians.
Oil shock boosts external position
Nigeria’s improved economic performance occurred against the backdrop of higher international oil prices following the conflict in the Middle East.
The World Bank said the rise in oil prices strengthened Nigeria’s export earnings and helped push the current account surplus to $12 billion, equivalent to 7.1 per cent of GDP, in the first half of 2026.
That compared with $8.6 billion, or 6.7 per cent of GDP, during the same period a year earlier.
Higher oil prices also supported government revenues, although the report noted that the gains were partly limited by existing oil pre-commitments under forward sales and oil-backed financing arrangements.
Nigeria’s gross external reserves also rose above $54 billion in September, with foreign portfolio inflows making a significant contribution.
The World Bank said ongoing reforms had also improved the functioning of the foreign exchange market.
Inflation remains a concern
Despite the improvement in growth and external balances, inflation continues to weigh on households.
The report noted that headline inflation had fallen sharply from 27.6 per cent in January 2025 to 15.2 per cent by December 2025, supported by tight monetary policy and reduced exchange-rate volatility.
However, the decline subsequently slowed following higher fuel prices associated with the Middle East conflict and seasonal food-price pressures.
The World Bank warned that inflation remained elevated and continued to erode household purchasing power.
Reforms need to translate into jobs
The development update projects that Nigeria’s economy will grow by an average of 4.4 per cent between 2026 and 2028.
Inflation is expected to decline gradually to about 12 per cent by 2028, while poverty is projected to begin declining gradually.
The World Bank, however, said the pace of improvement would depend on the government’s ability to sustain macroeconomic reforms, improve public services and create an environment conducive to private-sector investment and job creation.
The report also pointed to improvements by states in fiscal reporting and transparency, alongside efforts to increase internally generated revenue.
It said further improvements in spending efficiency and the mobilisation of internally generated revenue would be important next steps for state governments.
With states now receiving substantially higher revenues, the central challenge is shifting from revenue availability to how effectively the additional resources are converted into infrastructure, human capital and essential services.
The World Bank said maintaining the reform momentum while ensuring that the gains are broadly shared would be crucial to achieving faster improvements in living standards and reducing poverty across Nigeria.