Economy
Building defences against the next economic downturn
By David Lipton
The global economy faces a number of complex challenges from technological change and globalisation, and the lingering effects of the 2008-9 financial crisis. At the same time, we are witnessing lower levels of trust in the core institutions that have helped to deliver tremendous growth and prosperity over the past 40 years. These developments threaten to fragment the international order that has governed the global economy. The symptoms of this fragmentation include rising trade tensions, discord with and within some multilateral institutions, and a dilution of efforts to address the profound cross-border challenges of the 21st century, such as climate change, cyber-crime, and refugee flows. The question inevitably arises: if this is occurring at a time of solid global growth and relative financial stability, what might the next economic downturn produce?
History suggests such a downturn is somewhere over the horizon, and recent signs of slowing global growth should underline the imperative to prepare for unexpected developments. The distrust of institutions is not confined to the multilateral realm. National governance has in many respects fallen into disrepute—witness the turmoil resulting from recent elections in many countries. If we are to forestall the next economic downturn—and mitigate the impact when it arrives—countries need to shore up their defences now. These defences comprise financial firepower, policies to fight crises, and regulatory regimes, many put in place after the Global Financial Crisis. However, as matters stand now, there is no guarantee that they will be sufficient to keep a “garden variety” recession from becoming another full-blown systemic crisis.
On monetary policy, there is considerable discussion about how central banks can respond to a deep or prolonged downturn. For example, past U.S. recessions have been met with 500 basis points or more of Federal Reserve easing, and in the global financial crisis, central banks used their balance sheets extensively. However, with policy rates still so low in so many countries, and balance sheet normalisation still underway, that same policy response may not be available. Some suggest that unconventional monetary measures may provide the scope to respond to a crisis through negative rates, forward guidance pledges to hold rates at lower levels longer than justified by inflation targets or policy rules, or other innovations. But with the effectiveness of these ideas at best uncertain, there is reason for concern about the potency of monetary policy.
The next line of defence is fiscal policy, where many observers insist that the room for maneuver has been narrowing in the advanced economies. Public debt has risen—notably in the U.S. in the wake of tax cuts and spending increases. Indeed, in many countries deficits remain too high to stabilise or reduce debt. At the same time, if the next slowdown creates unemployment and economic slack, we should expect the multipliers to grow. That would restore some potency to fiscal policy, even at high debt levels. However, we should not expect governments to have the room in their budgets to respond as they did ten years ago. With high sovereign debt levels, fiscal stimulus may be a hard sell politically.
One lingering resentment growing out of the Global Financial Crisis was the perception that bankers were saved at the expense of the average worker. As a result, a future recession that endangers the finances of small businesses or homeowners would likely lead to calls to help relieve debt burdens. Supporting a larger share of the economy could further stress already stretched public finances, but failing to do so could deepen political divides. If recession once again threatens the stability of banks, the recourse to bailouts is now limited in law, following financial regulatory reforms that call for bail-ins of owners and lenders. But those new systems remain underfunded and untested. We should not lose sight of the fact that the impairment of key U.S. capital markets during the global financial crisis, which might have produced crippling spillovers across the globe, was robustly contained by unorthodox central bank actions supported by backstop funding from national treasuries. The capacity to do so again also is unlikely to be readily available.
The point is that national policy options and public financial resources may be much more constrained than in the past. The right lesson to take from that possibility is for each country to be much more careful to sustain growth, to limit vulnerabilities, and to prepare for whatever may come.
Another takeaway is the importance of multilateral preparedness and action. Institutions like the IMF have played a crucial role in responding to crises and keeping the global economy on track. The ability to respond effectively to these challenges has required a constant process of reform that needs to continue. In the face of the discontent with multilateralism in some advanced economies, it is essential for the process of IMF evolution to continue—across the range of lending, analytical and research activities—so that we continue to meet our core mission of supporting global growth and financial stability. This will become all the more important if national policy tools prove insufficient to meet a crisis. The IMF’s lending capacity was increased during the Global Financial Crisis to about one trillion dollars—a forceful response from our membership at a time of dire need. From that point of view, it was encouraging that the G20, at the November meeting in Buenos Aires, restated its commitment to support the global financial safety net, with a strong and adequately financed IMF at its centre. IMF Managing Director Christine Lagarde has called for a “new multilateralism,” one that is dedicated to improving the lives of all this world’s citizens and ensures that the economic benefits of globalisation and technology are shared much more broadly. This is an essential goal, and one element is to ensure that we can prevent future crises—and respond effectively to the next recession. This is a practical and pragmatic way to overcome distrust in institutions and build a shared and prosperous future.
David Lipton is Deputy Managing Director International Monetary Fund IMF
The Arab Africa Trade Bridges (AATB) Program and the Federal Republic of Nigeria formalized a partnership with the signing of the AATB Membership Agreement, officially welcoming Nigeria as the Program’s newest member country. The signing ceremony took place in Abuja on the sidelines of the 5th AATB Board of Governors Meeting, hosted by the Federal Government of Nigeria.
The Membership Agreement was signed by Eng. Adeeb Y. Al Aama, the CEO of the International Islamic Trade Finance Corporation (ITFC) and AATB Program Secretary General, and H.E. Mr. Wale Edun, Minister of Finance and Coordinating Minister of the Economy, Federal Republic of Nigeria. The Agreement will provide a strategic and operational framework to support Nigeria’s efforts in trade competitiveness, promote export diversification, strengthen priority value chains, and advance capacity-building efforts in line with national development priorities. Areas of collaboration will include trade promotion, agribusiness modernization, SME development, businessmen missions, trade facilitation, logistics efficiency, and digital trade readiness.
The Honourable Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, called for deeper trade collaboration between African and Arab nations, stressing the importance of value-added Agribusiness and industrial partnerships for regional growth. Speaking in Abuja at the Agribusiness Matchmaking Forum ahead of the AATB Board of Governors Meeting, the Minister said the shifting global economy makes it essential for African and Arab nations to rely more on regional cooperation, investment and shared markets.
He highlighted projections showing Arab-Africa trade could grow by more than US$37 billion in the next three years and urged partners to prioritize value addition rather than raw commodity exports. He noted that Nigeria’s growing industrial base and upcoming National Single Window reforms will support efficiency, investment and private-sector expansion.
“This is a moment to turn opportunity into action”, he said. “By working together, we can build stronger value chains, create jobs and support prosperity across our regions”, Edun emphasized. “As African and Arab nations embark on this journey of deeper trade collaboration, the potential for growth and development is vast. With a shared vision and commitment to value-added partnerships, we can unlock new opportunities, drive economic growth, and create a brighter future for our people.”
Speaking during the event, Eng. Adeeb Y. Al Aama, Chief Executive Officer of ITFC and Secretary General of the AATB Program, stated: “We are pleased to welcome Nigeria to be part of the AATB Program. Nigeria stands as one of Africa’s most dynamic and resilient economies in Africa, with a rapidly expanding private sector and strong potential across agribusiness, energy, manufacturing, and digital industries. Through this Membership Agreement, we look forward to collaborating closely with Nigerian institutions to strengthen value chains, expand regional market access, enhance trade finance and investment opportunities, and support the country’s development priorities.”
The signing of this Agreement underscores AATB’s continued engagement with African countries and its evolving portfolio of programs supporting trade and investment. In recent years, AATB has worked on initiatives across agribusiness, textiles, logistics, digital trade, export readiness under the AfCFTA framework, and other regional initiatives such as the Common African Agro-Parks (CAAPs) Programme.
With Nigeria’s accession, the AATB Program extends it’s presence in the region and adds a key partner working toward advancing trade-led development and fostering inclusive economic growth.
Federal Executive Council (FEC) has approved the 2026–2028 Medium-Term Expenditure Framework (MTEF), a key fiscal document that outlines Nigeria’s revenue expectations, macroeconomic assumptions, and spending priorities for the next three years. The approval followed Wednesday’s FEC meeting presided over by President Bola Tinubu at the State House, Abuja. The Minister of Budget and Economic Planning, Senator Atiku Bagudu made this known after the meeting.
The Minister said the Federal Government is projecting a total revenue inflow of N34.33 trillion in 2026, including N4.98 trillion expected from government-owned enterprises. Bagudu said that the projected revenue is N6.55 trillion lower than earlier estimates, adding that federal allocations are expected to drop by about N9.4 trillion, representing a 16% decline compared to the 2025 budget.
He said that statutory transfers are expected to amount to about N3 trillion within the same fiscal year. On macroeconomic assumptions, FEC adopted an oil production benchmark of 2.6 million barrels per day (mbpd) for 2026, although a more conservative 1.8 mbpd will be used for budgeting purposes. An oil price benchmark of $64 per barrel and an exchange rate of N1,512 per dollar were also approved.
Bagudu said the exchange rate assumption reflects projections tied to economic and political developments ahead of the 2027 general elections. He said the exchange rate assumption took into account the fiscal outlook ahead of the 2027 general elections.
The minister said that all the parameters were based on macroeconomic analysis by the Budget Office and other relevant agencies. Bagudu said FEC also reviewed comments from cabinet members before approving the Medium-Term Fiscal Expenditure Ceiling (MFTEC), which sets expenditure limits. Earlier, the Senate approved the external borrowing plan of $21.5 billion presented by President Tinubu for consideration The loans, according to the Senate, were part of the MTEF and Fiscal Strategy Paper (FSP) for the 2025 budget.
The spot rate on Nigerian Treasury bills has been increased by 146 basis points by the Central Bank of Nigeria (CBN) following tight subscription levels at the main auction on Wednesday. The spot rate on Treasury bills with one-year maturity has now surpassed Nigeria’s 16.05% inflation by 145 basis points following a recent decision to keep the policy rate at 27%.
The Apex Bank came to the primary market with N700 billion Treasury bills offer size across standard tenors, including 91-day, 182-day and 364 day maturities. Details from the auction results showed that demand settled slightly above the total offers as investors began to seek higher returns on naira assets despite disinflation.
Total subscription came in at about N775 billion versus N700 billion offers floated at the main auction. The results showed rising appetite for duration as investors parked about 90% of their bids on Nigerian Treasury bills with 364 days maturity. The CBN opened N100 billion worth of 91 days bills for subscription, but the offer received underwhelming bids totalling N44.17 billion.
The CBN allotted N42.80 billion for the short-term instrument at the spot rate of 15.30%, the same as the previous auction. Total demand for 182 days Nigerian Treasury bills settled at N33.38 billion as against N150 billion that the authority pushed out for subscription. The CBN raised N30.36 billion from 182 days bills allotted to investors at the spot rate of 15.50%, the same as the previous auction.
Investors staked N697.29 billion on N450 billion in 364-day Treasury bills that was offered for subscription. The CBN raised N636.46 billion from the longest tenor at the spot rate of 17.50%, up from 16.04% at the previous auction.
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