African Economies Face Mounting Budget Strain Amid World Bank Downturn Forecast

African nations are facing increasing budgetary strains as a result of a difficult external environment characterized by trade tensions, inflationary pressures, and growing debt loads, while global GDP is predicted to decline to its worst rate since 2008.
The World Bank is advising Nigeria to step up efforts to diversify its economy and fortify regional trade partnerships in the face of a global economic downturn brought on by rising trade tensions and policy uncertainties.
Due to Nigeria’s significant reliance on oil exports and susceptibility to changes in global markets, economic diversification and more African integration are essential to maintaining prosperity and boosting resilience in the face of growing worldwide

With the exception of outright recessions, the World Bank’s most recent Global Economic Prospects report emphasizes that persistent trade tensions and policy uncertainty are predicted to cause global GDP to decline to its lowest level since 2008. Almost 70% of economies, including Nigeria and most of Africa, are expected to see slower growth as a result of this downturn.
In 2025, global growth is expected to slow to 2.3%, which is about half a percentage point less than previous projections.
The average growth rate for the 2020s is expected to be the slowest since the 1960s, even though a global recession is not predicted.
But it stated that a worldwide recession is not anticipated. However, the bank stated that the first seven years of the 2020s will see the slowest average global growth since the 1960s if predictions for the next two years come to pass.
These global dynamics present serious difficulties for Nigeria. The combined effects of falling oil prices, rising import prices, and capital flow issues amid increased global uncertainty have caused the International Monetary Fund (IMF) to reduce Nigeria’s GDP prediction to 3% in 2025 and 2.7% in 2026. Nigeria is especially susceptible to changes in the price of commodities worldwide because of its reliance on the export of crude oil, which accounts for more than 70% of its export revenue.

The emerging world outside of Asia is evolving into a region devoid of progress. stated Indermit Gill, Senior Vice President for Development Economics and Chief Economist for the World Bank Group.
” For almost ten years, it has been promoting itself. From 6% yearly in the 2000s to 5% in the 2010s to less than 4% in the 2020s, growth in developing economies has slowed during the past three decades.

That follows the growth trajectory of international trade, which has decreased from an average of 5% in the 2000s to roughly 4.5% in the 2010s and less than 3% in the 2020s. While investment growth has also slowed, debt has reached all-time highs.

This year, growth is predicted to decelerate in almost 60% of developing economies, averaging 3.8 percent in 2025 before gradually increasing to an average of 3.9 percent in 2026 and 2027. That is less than a percentage point below the 2010s average.

This year, low-income nations are predicted to increase 5.3%, which is 0.4 percentage points less than what was predicted at the beginning of 2025. Increases in tariffs and tight labor markets are also driving up global inflation, which is still higher than it was before the epidemic and is expected to average 2.9% in 2025.

Slowing development will make it more difficult for developing nations to close the gap between their per capita income and that of rich nations, create jobs, and lessen extreme poverty. According to projections, developing economies’ per capita income growth will be 2.9% in 2025, which is 1.1 percentage points less than the average for the years 2000–2019.

According to the analysis, it would take developing economies other than China almost 20 years to reach their pre-pandemic economic output trajectory if they could maintain an overall GDP growth rate of 4%, which is the figure predicted for 2027.

According to the Bretton Wood institution, if major economies can resolve trade issues, financial volatility and general policy uncertainty will decrease, and global GDP may recover more quickly than anticipated. According to the estimate, global GDP would be on average 0.2 percentage points stronger in 2025 and 2026 if the trade disputes of today were settled with accords that cut tariffs in half from their levels in late May.

“Developing and emerging-market economies have benefited from trade integration, but now they are at the forefront of a global trade war,” stated Ayhan Kose, director of the Prospects Group and deputy chief economist at the World Bank.

The best course of action is to strengthen fiscal resilience to withstand the storm, push pro-growth policies, and intensify integration efforts with new partners. According to Kose’s research, “new international cooperation and dialogue can chart a more stable and prosperous path forward as trade barriers rise and uncertainty increases.”

The paper makes the case that emerging nations should aim for further trade liberalization in the face of growing trade obstacles by diversifying their trade, especially through regional accords, and pursuing strategic trade and investment alliances with other economies. Policymakers should prioritize fiscal spending for the most vulnerable households, mobilize domestic income, and reinforce fiscal frameworks in light of the government’s limited resources and growing development needs.

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According to the World Bank, in order to boost economic growth, nations must enhance business environments and encourage productive employment by giving workers the skills they need and establishing the framework for labor markets that effectively connect workers and businesses.

Supporting the most vulnerable emerging economies will require international cooperation, particularly through multilateral interventions, concessional funding, and emergency relief and support for nations involved in ongoing wars.

Nigeria’s own 27% tax on American goods exacerbates trade tensions, which include the US imposing a 14% duty on Nigerian exports, which threatens to lower export demand and foreign cash inflows. These reciprocal tariffs run the risk of raising import prices for Nigerians, depreciating the value of the Naira, and upsetting vital supply lines for the country’s economy.

The World Bank cautions that these trade disputes and the ensuing uncertainties will probably limit Nigeria’s fiscal flexibility and make it more difficult to finance infrastructure and social initiatives. Nigeria and other African countries face significant dangers as a result of the slowdown in global trade growth, which went from 5% in the 2000s to less than 3% in the 2020s, as well as growing debt levels.

Experts advise Nigeria to increase economic diversification by strengthening its own value chains and industrial capabilities in order to overcome these obstacles and lessen its reliance on outside demand. Global concerns may also be mitigated by seeking strategic commercial alliances within Africa and building regional economic integration.

Additionally, maintaining growth and job creation depends on strengthening the business environment, increasing labor market efficiency, and mobilizing domestic revenues. Supporting Nigeria and other vulnerable African countries during this time of increased economic instability would require international collaboration and concessional funding.