Nigeria’s improving economic indicators could come under pressure in the fourth quarter of the year as rising political spending ahead of the 2027 general elections tests the gains made in foreign exchange stability, inflation and liquidity management.
According to economic policy analyst Dr Felix Ijeh, Nigeria is entering the final quarter of the year with stronger external reserves, a firmer naira, easing headline inflation and more sophisticated monetary policy tools, but warned that election-related spending could undermine the progress if fiscal and monetary policies move in opposite directions.
His assessment comes as Nigeria’s external reserves rose to about $52.66 billion by August 19, while the naira strengthened to about ₦1,350 to the dollar by August 17.
Ijeh, a lecturer at Adeyemi Federal University of Education, Ondo, said the stronger reserve position provides an important buffer against potential foreign exchange pressure during the election cycle.
However, he cautioned that the reserve build-up should not be treated as a “blank cheque”, particularly if businesses, importers, investors and households begin to anticipate a weakening naira.
“A more stable naira can gradually reduce uncertainty for businesses that import raw materials, machinery and finished goods. It also gives households and businesses greater confidence when planning expenses,” he said.
He added that the naira’s stability was not driven by interest rates alone, but also depended on oil receipts, foreign exchange liquidity, investor confidence, portfolio flows and expectations about future policy.
The bigger concern for the fourth quarter, Ijeh said, is the growing tension between fiscal spending and the Central Bank of Nigeria’s (CBN) efforts to control liquidity.
The CBN reportedly absorbed about ₦4.7 trillion through Open Market Operations on August 3 and 4, followed by a ₦2.48 trillion OMO repayment on August 11. More than ₦7 trillion had already been absorbed through similar operations in July.
Ijeh said the aggressive liquidity management showed that the CBN was determined to prevent excess naira liquidity from weakening its fight against inflation, but that the tightening has consequences for businesses and investors.
The Nigerian Exchange reportedly lost about ₦2.1 trillion in market value following the renewed tightening, as investors reassessed the attractiveness of equities against fixed-income instruments offering yields of around 18 to 21 per cent.
For manufacturers and smaller businesses, continued tight liquidity and high interest rates could increase the cost of working capital, inventory financing and investment.
Ijeh expects the CBN to continue using OMO operations and other liquidity-management tools as political spending increases.
“Q4 could bring a monetary policy tug-of-war: fiscal spending pushing liquidity into the economy while the CBN tries to pull it back out,” he said.
That could make a significant reduction in interest rates difficult in the near term.
Pinnacle Daily had earlier analysed that the recent OMO reset might be doing more than simply improving access to the fixed-income market, and could be giving the apex bank a more flexible liquidity-management toolkit ahead of the 2027 election.
Food prices remain the weak point
Although headline inflation eased from 15.91 per cent in June to 15.43 per cent in July 2026, Ijeh noted that food inflation moved in the opposite direction, rising sharply to 20.31 per cent from 17.52 per cent.
Prices of rice, tomatoes, garri, onions, pepper, beef, eggs and other staples contributed to the increase, highlighting the gap between improving headline inflation and the experience of households at the market.
“Headline inflation is improving, while many households do not feel that improvement at the market stall,” he said.
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He warned that election-related spending could worsen food price pressures if higher demand coincides with supply constraints caused by insecurity, logistics problems, weather conditions and limited agricultural output.
The Nigeria Economic Summit Group (NESG) has projected average inflation of about 15.5 per cent in 2026 but warned of the possibility of renewed inflationary pressure in 2027 if pre-election spending coincides with supply disruptions.
Ijeh also pointed to the scale of potential political spending, noting that presidential and governorship candidates could collectively spend up to about ₦571 billion under applicable campaign limits.
Oil investment offers longer-term support
Amid the concerns, Ijeh identified the Federal government’s new deep-water oil incentive framework as a positive development for Nigeria’s longer-term economic prospects.
The government approved the Deep Offshore Oil and Gas Projects Incentives (Tax Remission) Order, 2026, with the aim of unlocking up to $50 billion in offshore oil investment.
Ijeh said the framework could support delayed projects, including Shell’s proposed $10 billion Bonga South West development, while improving investor confidence and potentially increasing oil production and foreign exchange earnings.
However, he cautioned that the projected $50 billion should not be viewed as immediate capital inflow.
“Large offshore investments take years to approve, finance, construct and bring into production,” he said, adding that the immediate benefit was more about investor confidence and policy credibility.
The analyst said investors would be watching whether fiscal discipline, regulatory consistency and contract credibility survive the approach to the 2027 elections.
He also welcomed the CBN’s decision to remove restrictions that had prevented banks participating in the Nigerian Foreign Exchange Market and primary government securities auctions from accessing its Standing Lending Facility.
According to Ijeh, the move allows the central bank to tighten excess liquidity while still providing banks with controlled access to liquidity when necessary.
He expects Nigeria’s economy to remain resilient in Q4, with growth around 4.2 per cent, supported by oil, services and agriculture.
However, he expects interest rates to remain high, food inflation to remain a major pressure point and the naira to face greater election-related volatility.
“The most likely scenario is not an economic crisis. It is a period of increased tension between stability and political spending,” Ijeh said.
He warned that Nigeria’s stronger economic foundation could come under pressure if fiscal expansion accelerates during the election season.
“The most important economic policy story going into Q4 2026 may not be any single number,” he said. “It will be whether Nigeria can maintain fiscal discipline while the political temperature rises.”
For Ijeh, the central challenge is therefore to ensure that increased government spending expands productive capacity through infrastructure, agriculture, energy, transport, security and human capital rather than simply driving temporary consumption.
Adding, he warned, “Do not sacrifice the macroeconomic gains of today for the political convenience of tomorrow.”
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X