African Economies Confront Budget Pressures As World Bank Projects Worse Downturn

As global growth is projected to slow to its weakest pace since 2008, African economies are grappling with mounting budget pressures as they face a challenging external environment marked by trade tensions, inflationary pressures, and rising debt burdens.

Amid a global economic slowdown driven by escalating trade tensions and policy uncertainties, the World Bank is urging Nigeria to accelerate efforts to diversify its economy and strengthen regional trade partnerships challenges.

Nigeria’s heavy reliance on oil exports and exposure to international market fluctuations make economic diversification and deeper integration within Africa critical to sustaining growth and enhancing resilience in the face of mounting global

The World Bank’s latest Global Economic Prospects report highlights that ongoing global trade tensions and policy uncertainty are expected to slow worldwide growth to its weakest pace since 2008, excluding outright recessions. This slowdown is forecast to cut growth in nearly 70 per cent of economies, including Nigeria and much of Africa.

Global growth is projected to decelerate to 2.3 per cent in 2025, nearly half a percentage point lower than earlier expectations. While a global recession is not anticipated, the average growth rate for the 2020s is set to be the slowest since the 1960s.

However, it said a global recession is not expected. But the bank said if forecasts for the next two years materialize, average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s.

For Nigeria, these global dynamics pose significant challenges. The International Monetary Fund (IMF) has downgraded Nigeria’s growth forecast to 3 per cent in 2025 and 2.7 percent in 2026, reflecting the combined impact of declining oil prices, rising import costs, and capital flow difficulties amid heightened global uncertainties. Nigeria’s reliance on crude oil exports—accounting for over 70 percent of export earnings—makes it particularly vulnerable to global commodity price volatility.

“Outside of Asia, the developing world is becoming a development-free zone. said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President for Development Economics.

“It has been advertising itself for more than a decade. Growth in developing economies has ratcheted down for three decades—from 6 per cent annually in the 2000s to 5 per cent in the 2010s—to less than 4 per cent in the 2020s.

“That tracks the trajectory of growth in global trade, which has fallen from an average of 5 per cent in the 2000s to about 4.5 per cent in the 2010s—to less than 3 per cent in the 2020s. Investment growth has also slowed, but debt has climbed to record levels.”

Growth is expected to slow in nearly 60 per cent of all developing economies this year, averaging 3.8 percent in 2025 before edging up to an average of 3.9 per cent over 2026 and 2027. That is more than a percentage point lower than the average of the 2010s.

Low-income countries are expected to grow 5.3 per cent this year—a downgrade of 0.4 percentage point from the forecast at the start of 2025. Tariff increases and tight labor markets are also exerting upward pressure on global inflation, which, at a projected average of 2.9 per cent in 2025, remains above pre-pandemic levels.

Slowing growth will impede developing economies in their efforts to spur job creation, reduce extreme poverty, and close per capita income gaps with advanced economies. Per capita income growth in developing economies is projected to be 2.9 per cent in 2025—1.1 percentage points below the average between 2000 and 2019.

The report said that if developing economies other than China are able to sustain an overall GDP growth of 4 per cent—the rate forecast for 2027—it would take them about two decades to return to their pre-pandemic trajectory with respect to economic output.

The Bretton Wood institution said global growth could rebound faster than expected if major economies are able to mitigate trade tensions—which would reduce overall policy uncertainty and financial volatility. The analysis finds that if today’s trade disputes were resolved with agreements that halve tariffs relative to their levels in late May, global growth would be 0.2 percentage point stronger on average over the course of 2025 and 2026.

“Emerging-market and developing economies reaped the rewards of trade integration but now find themselves on the frontlines of a global trade conflict,” said the World Bank’s deputy chief economist and director of the Prospects Group, Ayhan Kose.

“The smartest way to respond is to redouble efforts on integration with new partners, advance pro-growth reforms, and shore up fiscal resilience to weather the storm. With trade barriers rising and uncertainty mounting, renewed global dialogue and cooperation can chart a more stable and prosperous path forward,” Kose stated in the report.

The report argues that in the face of rising trade barriers, developing economies should seek to liberalise more broadly by pursuing strategic trade and investment partnerships with other economies and diversifying trade—including through regional agreements. Given limited government resources and rising development needs, policymakers should focus on mobilising domestic revenues, prioritising fiscal spending for the most vulnerable households, and strengthening fiscal frameworks.

The World Bank said countries will need to improve business climates and promote productive employment by equipping workers with the necessary skills and creating the conditions for labour markets to efficiently match workers and firms, to accelerate economic growth.

Global collaboration will be crucial in supporting the most vulnerable developing economies, including through multilateral interventions, concessional financing, and, for countries embroiled in active conflicts, emergency relief and support.

Trade tensions, notably the imposition of a 14 per cent US tariff on Nigerian exports, threaten to reduce export demand and foreign exchange inflows, while Nigeria’s own 27 per cent tariff on American goods adds to the trade friction. These reciprocal tariffs risk increasing costs for Nigerian importers, weakening the Naira further, and disrupting supply chains critical to the economy.

The World Bank warns that such trade conflicts and the resulting uncertainty are likely to constrain Nigeria’s fiscal space, complicating efforts to fund social programs and infrastructure. The slowdown in global trade growth—from 5 percent in the 2000s to below 3 per cent in the 2020s—coupled with rising debt levels, poses additional risks to Nigeria and other African economies.

To navigate these headwinds, experts recommend that Nigeria accelerate economic diversification by deepening domestic value chains and industrial capacity, reducing dependence on external demand. Strengthening regional trade integration and pursuing strategic trade partnerships within Africa could also help offset global uncertainties.

Furthermore, improving the business climate, enhancing labor market efficiency, and mobilising domestic revenues are critical to sustaining growth and job creation. Global cooperation and concessional financing will be essential to support Nigeria and vulnerable African economies through this period of heightened economic uncertainty.

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