IMF Flags Nigeria’s Off-Budget Spending: Why 2% of GDP Missing from the Books Matters More Than the Numbers Suggest
The International Monetary Fund has put a figure to a problem many analysts in Nigeria’s financial markets have long suspected but could never prove: about 2% of GDP in public expenditure is happening outside the formal budget, and it is not showing up in the headline fiscal deficit. On July 3, 2026, the IMF Resident Representative in Nigeria, Christian Ebeke, confirmed that major infrastructure projects financed or executed outside the budget framework are creating real fiscal obligations for government, yet those obligations are omitted from official accounts. The result is that Nigeria’s fiscal deficit and borrowing needs look smaller on paper than they actually are. This is not an accounting quibble. It is a credibility problem with direct consequences for inflation, interest rates, and the cost of government debt.
The core issue is simple: if spending exists but is not reported, then the deficit is understated. Two percent of GDP is not a rounding error. With Nigeria’s GDP estimated at roughly 280 trillion naira in 2026, that missing expenditure is about 5.6 trillion naira — larger than the entire capital budget of several ministries combined. Because it sits outside the Appropriation Act, it escapes the usual legislative scrutiny, procurement oversight, and cash planning by the Office of the Accountant General. Yet the projects still have to be paid for, usually through contractor financing, vendor credit, or off-balance-sheet borrowing by agencies. Those bills eventually come due and become part of public debt, but only after the money has been spent and the macroeconomic impact felt. In effect, Nigeria has been running a shadow budget that injects demand into the economy without warning to the Central Bank, investors, or even the Debt Management Office.
That is why the IMF says this goes beyond statistics. Monetary policy cannot work if the fiscal anchor is loose. The CBN sets interest rates and cash reserve ratios based on its view of government borrowing and aggregate demand. If 5.6 trillion naira of spending is unreported, then the CBN’s models of liquidity and inflation are missing a key variable. The same applies to investors pricing Nigerian Eurobonds or Treasury bills. A deficit of 4% of GDP attracts one risk premium; a true deficit of 6% attracts another. When credit rating agencies like Moody’s or S&P discover that fiscal reporting is incomplete, they do not just adjust the numbers. They adjust their judgment of institutional quality. That judgment shows up in higher yields. So the “savings” from keeping projects off-budget are an illusion. The government still pays, just through higher interest costs on all its debt, not just the hidden portion.
The IMF’s timing is also telling. The warning came right after the 2026 Article IV Consultation, which praised Nigeria’s reforms on fuel subsidies and FX but flagged “persistent structural weaknesses in public financial management, revenue mobilisation and fiscal transparency.” In other words, the headline reforms are real, but the plumbing of government finance still leaks. The Fund acknowledged that the Federal Government is working on legislative changes to bring these expenditures into future budgets. That is necessary, but legislation alone does not fix implementation. Nigeria’s Fiscal Responsibility Act already requires comprehensive disclosure, yet off-budget spending has persisted through special-purpose vehicles, project-tied loans from foreign contractors, and infrastructure funds that sit outside the Consolidated Revenue Fund. Without real-time budget implementation reports, independent audits, and procurement data that the public can verify, the new laws risk becoming another layer of paper compliance.
There is also a political economy angle that the IMF statement hints at but does not spell out. Off-budget projects are attractive because they get around the slow, contentious, and transparent process of appropriation. A ministry can sign an MoU with a foreign contractor, secure vendor financing, and break ground without waiting for the National Assembly. The project is visible and politically popular. The liability is not. Over time, this creates two classes of spending: the formal budget that is debated, cut, and delayed, and the informal budget that moves quickly but in the shadows. That weakens the legislature’s power of the purse and reduces accountability. If citizens and civil society cannot see the full cost of government, they cannot ask whether a road or rail line was worth it. That erodes the social contract and feeds the perception that public finance is managed for insiders.
The implications for banks and markets are direct. First, sovereign risk is being mispriced. Sterling Bank’s Q1 2026 balance sheet, for example, holds 812.18 billion naira in debt instruments at FVOCI, largely government securities. Those securities are priced on the assumption that the deficit is X and borrowing is Y. If the true fiscal position is 2% of GDP worse, then the fair value of those bonds should be lower and yields higher. Banks carrying large sovereign portfolios could face mark-to-market losses when the market corrects. Second, CBN policy may have to be tighter than it otherwise would be. If hidden spending is fueling inflation, the Monetary Policy Committee will keep rates high to compensate, hurting private credit. Banks like Sterling that are already cautious on lending will have even less incentive to extend loans when risk-free government paper pays more. Third, the cost of future infrastructure will rise. Contractors and lenders who suspect they are being paid through opaque structures will demand higher returns to cover the political risk. That makes every new project more expensive for taxpayers.
The way out is not complicated, but it is difficult. Aligning fiscal reporting with international standards means the budget must capture all liabilities at the point they are incurred, not when cash changes hands. That requires the Budget Office, DMO, and Accountant General to track and publish commitments from all MDAs, including those funded by external vendors. It means monthly budget implementation reports that show not just releases but actual payments and arrears. It means giving the Auditor General and the Bureau of Public Procurement real power to stop projects that do not go through the system. And it means the National Assembly must treat off-budget financing as a breach of appropriation law, not a technicality.
The government’s stated commitment to review budget legislation is a start, but credibility will only come when the 2027 budget lands and the 2% of GDP is inside it, with line items, contractors, and timelines attached. Until then, every fiscal statistic Nigeria publishes will carry an asterisk. Investors will add a risk premium for that asterisk. The CBN will set policy around it. And banks will keep their loan-to-deposit ratios low, their government securities high, and their exposure to the real economy muted.
Off-budget spending is not just a reporting gap. It is a tax on transparency, and like all taxes, someone pays. In this case, it is every Nigerian who faces higher inflation, every business that faces higher interest rates, and every future taxpayer who will service debt they never voted for. The IMF has named the problem. Fixing it is now a test of whether Nigeria’s fiscal reforms are about changing numbers on a spreadsheet, or changing how government actually works.
