Nigeria’s fragile economic recovery could face new pressure as global monetary tightening intensifies. Signals from Washington suggest that policy missteps—either too aggressive or too slow—may complicate reform efforts already testing public tolerance.

Nigeria’s Finance Minister, Wale Edun, cautioned that sharp increases in interest rates could weaken ongoing economic reforms across developing countries. Speaking at a G-24 session on the sidelines of meetings hosted by the International Monetary Fund in Washington, D.C., Edun urged central banks to tread carefully.

He warned that while delaying action could fuel inflation, excessive tightening risks slowing growth and derailing structural reforms—particularly in economies like Nigeria that are still adjusting to major policy shifts such as fuel subsidy removal and foreign exchange liberalisation.

The comments come as Nigeria navigates a delicate transition, with the Central Bank of Nigeria recently easing its benchmark rate slightly after months of aggressive tightening, citing early signs of moderating inflation.

At the heart of Edun’s warning is a policy dilemma confronting not just Nigeria but many emerging economies: how to fight inflation without choking off recovery.

Higher interest rates typically reduce inflation by limiting borrowing and spending. But in Nigeria’s case, where reforms are still reshaping the economy, tighter credit conditions could slow investment, increase borrowing costs for businesses, and dampen job creation.

However, a closer look shows the risks are not evenly distributed. Large corporations with access to capital may absorb higher rates, but small and medium-sized enterprises—already strained by currency volatility and rising input costs—face steeper barriers to growth.

Beyond the official statement, there is also a political dimension. Economic reforms such as subsidy removal have already triggered cost-of-living pressures. If high interest rates further restrict economic activity, public support for these reforms could weaken, creating pressure for policy reversals.

What makes this more complex is that inflation in Nigeria is not driven solely by demand. Structural issues—energy costs, supply chain disruptions, and exchange rate volatility—limit how effective interest rate hikes alone can be. This aligns with broader concerns raised within the G-24 that monetary tools may not fully address supply-side shocks.

Nigeria’s economic reforms since 2023 have aimed to stabilise public finances and attract investment. The removal of fuel subsidies and the unification of exchange rates were designed to correct long-standing distortions.

Yet these measures have come with short-term pain. Inflation has remained elevated, while borrowing costs surged during the Central Bank’s tightening cycle, which pushed rates above 26%.

Recent data showing a modest rise in private sector credit suggests some recovery in lending activity. But compared to historical trends, access to finance remains constrained, particularly for smaller businesses.

A similar pattern played out in previous tightening cycles, where aggressive rate hikes slowed inflation but also weakened growth momentum. The current challenge lies in avoiding that trade-off at a time when reforms are still taking root.