Nigeria’s Twin Economic Pressures: High Inflation and a Power Sector in Crisis -By Muhammad Mustapha Bundi

Nigeria is currently navigating a challenging phase characterized by the persistence of high inflation alongside a deeply troubled power sector — a combination that is putting pressure on households, businesses and the broader prospects for sustainable growth. According to the African Development Bank’s outlook, inflation in Nigeria is expected to average around 24.7% in 2025, before easing to about 17.3% in 2026, largely on account of structural reforms, higher agricultural output and tighter monetary policy. However, this still means prices remain elevated and purchasing power remains under strain.

The inflation story is more nuanced: The International Monetary Fund (IMF) projects even more persistent inflation pressures, forecasting a rate of 26.5% in 2025 and potentially rising to 37% by 2026 if current vulnerabilities persist. These inflation levels have multiple drivers: depreciation of the naira, elevated food and energy costs, and structural rigidities in key sectors. For example, data from the National Bureau of Statistics show that headline inflation eased somewhat to 22.22% in June 2025, down from around 34.2% in June 2024.

While inflation remains a pressing concern, the power sector is compounding the economic stress. Despite an installed generation capacity of over 13,000 MW, only about one‐third (or even less) of that is actually generated or utilised. A recent report by the Nigerian Electricity Regulatory Commission (NERC) showed that of 13,625 MW installed, only 5,577 MW was available on average in a recent month, meaning more than half the capacity was effectively stranded.

This stranded capacity is not just a technical issue: it translates to serious financial and operational stress for power generation companies (GenCos). From January to August 2025, the average monthly loss from stranded generation capacity was about N7.36 billion, with losses peaking at N20.17 billion in August. Meanwhile, debt owed to the sector by the government and other market players is reaching staggering levels — threatening shutdowns and undermining investor confidence.

The combined effect of stubborn inflation and a weak power supply is substantial. For everyday Nigerians, rising prices erode disposable income — making essentials more expensive — while inconsistent power supply escalates costs for households and businesses alike (for example, the need for private generators, fuel costs, etc.). For the economy at large, firms face higher operating costs, which starves productivity and dampens investment.

From a growth perspective the picture is mixed. According to the World Bank, Nigeria recorded its strongest expansion in a decade in 2024, with growth of about 4.6% year-on-year in Q4, helped by subsidy removals, exchange-rate reforms and revenue improvements. However, the Bank also cautions that this growth comes amid high inflation and that sustaining it will require continued reforms. Thus, while growth momentum exists, inflation and structural bottlenecks (including power) threaten to blunt its benefits.

The power sector challenge in particular is a structural drag. As analysts point out, inefficiencies, transmission losses, weak revenue collection, inadequate infrastructure and policy inconsistencies have imposed a liquidity strain that limits growth. Without major improvements in generation, transmission, distribution, and revenue flows, resolving the sector will remain elusive.

On the labor front, the economy faces an urgent structural challenge. The Nigerian Economic Summit Group (NESG) warns that Nigeria must create around 27.3 million new formal jobs between 2025 and 2030 — an average of 4.55 million per year — just to maintain the current (low) unemployment rate. Yet job creation is stunted by the same inflation and power constraints: firms expanding cautiously, investment uncertain, and productivity hampered.

In a nutshell, Nigeria finds itself at a crossroads. The bold reforms of the past year(s) — fuel subsidy removal, exchange-rate liberalisation, tariff adjustments — are yielding some results, but they have also exposed or magnified underlying vulnerabilities: high inflation, weak power infrastructure, debt stress and fragile job creation. The success or failure of Nigeria’s near-term trajectory will depend heavily on how well these twin pressures are managed. Addressing inflation requires monetary discipline, effective social safety nets, and cost control. Fixing the power sector demands investment, policy coherence, and better revenue‐flows.

Ultimately, for ordinary Nigerians the key question remains: Will the reforms translate into tangible improvements in living standards — more affordable essentials, reliable power, more jobs — or will the gap between macro indicators and lived reality widen further? The coming months will be critical.

Muhammad Mustapha Bundi Student of mass communication Kashim Ibrahim University, Maiduguri