Why stronger domestic revenue mobilisation remains Nigeria’s best path to fiscal space

Before now, Nigeria’s fiscal narrative has been trapped in a familiar paradox: an ambitious national budget laden with critical infrastructure goals, consistently hamstrung by a narrow revenue base and heavy debt-servicing obligations.

While short-term debt relief measures and external borrowing offer temporary breathing room, they ultimately compound long-term vulnerabilities.

As policymakers grapple with balancing expansive public investments against macroeconomic stability, a consensus has emerged among economic managers – solving Nigeria’s structural deficit is no longer just about cutting costs or managing loans – it is about fundamentally expanding what the nation earns internally.

Zacch Adedeji, executive chairman, Nigeria Revenue Service (NRS) recently said that a combination of far-reaching reforms had moved the country from acute macroeconomic distress to a more stable and increasingly resilient footing.

He identified the removal of petrol subsidy, unification of the foreign exchange (FX) market, implementation of the Petroleum Industry Act (PIA), tighter monetary policy, and ongoing tax overhaul as the major reforms driving improvement in economic fundamentals.

In its report, titled, “National Economic Performance: Baseline (May 29, 2023) vs Current Outlook (Mid-June 2026): A Comparative Review of President Bola Ahmed Tinubu Administration’s Economic Reform Programme,” the NRS noted the economy inherited four mutually reinforcing distortions in May 2023.

The NRS report said the distortions included an unsustainable fuel subsidy regime, a fragmented and opaque foreign exchange market, an oil sector producing substantially below capacity, and a tax base far below its potential.

“Measured against its May 2023 starting point, the Nigerian economy has moved decisively from acute macroeconomic distress toward a more stable and increasingly resilient footing,” NRS noted.

It said the next phase would require consolidating the gains, sustaining revenue growth, improving debt-service capacity, and ensuring that macroeconomic stability translated into durable improvements in investment, production, and living standards.

According to the NRS, the combined effect of monetary, fiscal, tax and structural reforms had created a more predictable environment for capital-intensive and export-oriented businesses.

“Taken together, these reforms have enhanced the operating environment for capital intensive and export-oriented firms by improving market efficiency, strengthening macroeconomic stability, increasing investor confidence, and facilitating more efficient allocation of capital,” NRS stated.

NRS said the stronger macroeconomic fundamentals represented a significant shift from the difficult conditions that followed the initial implementation of the reforms. It, nevertheless, acknowledged that the adjustment had come with considerable pain for businesses and households, but maintained that the economy was increasingly transitioning from adjustment to consolidation.

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Tax collections rose from N12.3 trillion in 2023 to N21 trillion in 2024 and N28.3 trillion in 2025, while total collections stood at N27.1 trillion in the first eight months of 2026. The improvement also pushed the tax-to-GDP ratio to 13 percent from 10.3 percent in 2023, although NRS said there remained considerable room for further expansion towards the government’s 18 percent target.

The NRS attributed the revenue growth to the digitalisation of tax administration, expansion of the tax base, and the implementation of the new tax framework. NRS further noted that the national e-invoicing system for large taxpayers was among the key digital initiatives supporting improved compliance, while four new laws that came into effect on January 1, 2026 further transformed the country’s tax administration.

The laws were the Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service Establishment Act, and Joint Tax Board Establishment Act.

The transformation of the former Federal Inland Revenue Service into NRS also helped to expand the revenue consolidation framework by bringing together non-tax revenue streams previously collected by other government agencies, the report said.

NRS projected that revenue mobilisation could strengthen further as e-invoicing coverage expanded and the new tax laws became fully operational in 2026 and 2027.

The report further noted that the removal of the fuel subsidy and unification of the exchange rate within days of Tinubu’s assumption of office constituted the two foundational adjustments from which several subsequent improvements could be traced.

The service said subsidy removal freed federally collectible revenue that had previously been consumed by fuel under-recovery, while FX unification eliminated round-tripping and arbitrage, restoring price discovery and credibility to the currency market. It said the impact had increasingly become visible in government revenue, investment, production and corporate performance.

Adedeji added that the reforms implemented by President Bola Tinubu since May 2023, when he was sworn in, were beginning to produce stronger and more measurable outcomes across the economy. He said the economy was now showing “strong signs of full recovery and accelerated growth” following the difficult adjustments triggered by the initial reforms.

According to him, improvements in exchange rate stability, moderating inflationary pressures, and liquidity conditions have strengthened business confidence and enabled companies and investors to make longer-term decisions with greater certainty.

“Nigeria’s economy is showing strong signs of full recovery and accelerated growth following a series of necessary reforms by the current administration.

“The economy has moved decisively from acute macroeconomic distress to a more stable and increasingly resilient footing. This is as a result of President Bola Tinubu’s economic management acumen and doggedness in implementing his reforms as part of his Renewed Hope Agenda for the country,” Adedeji said.

Adedeji further noted that the banking sector recapitalisation had strengthened the financial system’s capacity to support large-scale corporate financing, adding that the ongoing tax reforms have simplified administration and broadened the revenue base.

He said, “These reforms have improved the overall business climate and reduced structural inefficiencies as well as enhanced the operating environment for capital intensive and export-oriented firms by improving market efficiency, strengthening macroeconomic stability, increasing investor confidence.”

He affirmed that comprehensive structural reforms embarked upon by the current administration had translated into measurable improvements in corporate financial performance through stronger market fundamentals and a more predictable business environment.

“The resulting improvements in operational efficiency, financial transparency, and investment planning provide a clear economic explanation for the substantial increases in both revenue and earnings before tax recorded by many of the companies in this dataset,” Adedeji said.

The service stated that non-oil sources now accounted for 76 percent of total collections, describing the development as a major step towards diversifying public revenue, even though oil receipts remain significant.

The service also pointed to improvements in the country’s debt position, saying the debt-to-GDP ratio declined from 35.5 percent in 2025 to 32.3 percent in 2026.

It attributed the decline largely to nominal GDP growth outpacing debt accumulation, and stated that the ratio remained below the IMF’s 55 percent risk threshold.

NRS explained that the increase in naira-denominated debt stock had been driven largely by the revaluation of dollar-denominated obligations following the movement in the exchange rate rather than fresh borrowing.

It pointed out that investor confidence had also improved, citing the oversubscription of Nigeria’s November 2025 Eurobond by 12 times and a record order book as evidence that international markets were increasingly pricing Nigerian risk more favourably.

However, NRS cautioned that debt-service-to-revenue remained an important metric requiring sustained attention. It said stronger domestic revenue mobilisation remained the more durable route to reducing the burden and creating additional fiscal space for capital expenditure.

The oil and gas sector also recorded a significant turnaround, according to NRS, with crude production recovering to about 1.73 million barrels per day by August 2026, equivalent to about 104 per cent of Nigeria’s OPEC quota.

That was against the production of between 1.2 million and 1.3 million barrels per day around the beginning of the reform period.

NRS attributed the recovery to intensified security operations against pipeline vandalism and crude theft, as well as continued implementation of PIA, which it said had improved fiscal and regulatory certainty for upstream operators.

It acknowledged that monthly output had fluctuated during the recovery but said the overall trajectory remained upward after years of underinvestment and operational disruptions. Perhaps more significant, the NRS said, was the sharp expansion in domestic refining capacity.

From about 30,000 barrels per day in May 2023, domestic refining capacity rose to approximately 700,000 barrels per day by mid-2026. About 90 percent of domestic petrol supply is now being met through local refining, while diesel imports fell to zero by May 2026.

The service attributed the development largely to the growing role of private capital in the downstream petroleum sector, with Dangote Refinery emerging as a major component of the transition.

It noted the crude-for-naira arrangement between Nigerian National Petroleum Company Limited and Dangote Refinery had also reduced dollar demand associated with fuel imports, thereby easing pressure on the foreign exchange market.

NRS said the developments demonstrated the impact of providing greater policy and regulatory certainty to unlock private-sector investment rather than relying solely on public financing.

It stated that major upstream transactions involving Seplat Energy and Aradel Holdings had strengthened the long-term prospects of the oil and gas sector by expanding reserves and production capacity, and reducing uncertainty around major investments.

The banking sector recapitalisation was also identified as an important pillar of the emerging recovery. According to NRS, stronger bank capital positions would improve the capacity of financial institutions to support large-scale corporate financing and provide businesses with greater access to capital for expansion.