Nigeria’s 2026 budget relies on the assumption that inflation will continue to moderate and that oil prices will remain relatively stable. These factors significantly influence government revenues, expenditures and the overall fiscal balance. Assessing the budget’s resilience means examining how deviations in inflation and oil prices could affect its implementation.

Inflation Outlook: Moderation Anticipated but Risks Remain

The budget builds on a positive trend of inflation easing for eight consecutive months through most of 2025, supported by stabilising food and energy prices and tighter monetary policies. However, inflation rose again in December 2025, signaling that price pressures remain.

If inflation proves higher or more volatile than anticipated:

• The cost of capital projects and public services could increase, reducing the real value and impact of government spending.
• Debt servicing costs may rise as interest rates adjust to inflationary pressures.
• Consumption-dependent tax revenues could weaken, narrowing fiscal space and complicating budget execution.

This recent uptick highlights the fragility of the inflation outlook and underscores the need for fiscal flexibility.

Oil Prices and Production: The Fiscal Backbone

Oil revenues remain central to Nigeria’s budget. The 2026 fiscal plan is based on a cautious oil price benchmark in the low to mid-$60 range per barrel and assumes production around 1.84 million barrels per day. These assumptions reflect a balance of optimism for improved production and caution about global market volatility.

Potential risks include:

• A drop in oil prices would lower government revenue and foreign exchange reserves, widening the fiscal deficit.
• Production challenges from operational issues or security disruptions could reduce output below budgeted levels.
• Lower oil earnings might exert pressure on the Naira, potentially fueling inflation.

Combined Risks: Inflation and Oil Price Shocks

A scenario where inflation remains elevated or volatile while oil revenues underperform would place significant strain on Nigeria’s fiscal position. Reduced income coupled with rising costs could force spending cuts or increased borrowing, complicating efforts to maintain economic stability and fund priority sectors.

Why Stress Testing Matters

The 2026 budget’s effectiveness depends not only on its baseline assumptions but on how well it manages risks. Incorporating realistic stress scenarios around inflation volatility and oil price shocks will help policymakers build flexibility and resilience into fiscal planning—critical steps to navigate ongoing economic uncertainties and support sustained growth.