MORE than half of Nigeria’s economy continues to operate outside the formal system, despite years of reforms aimed at expanding the tax net, according to a new report by Moody’s Ratings.

The informal economy accounts for nearly 55 percent of official GDP, one of the highest levels in Sub-Saharan Africa, the ratings agency said. The widespread informality is limiting tax collection, weakening economic policy implementation, and constraining long-term growth.

The finding underscores a persistent structural challenge for Africa’s largest economy, even as the federal government intensifies efforts to boost non-oil revenue, improve tax compliance, and reduce reliance on borrowing amid rising debt-servicing costs and fiscal pressures following the removal of petrol subsidies.

Successive administrations have pursued reforms over the past decade, including digital tax administration platforms, financial inclusion drives, cashless payment policies, and broader taxpayer registration initiatives. Yet a substantial share of economic activity remains beyond official oversight.

Moody’s noted that informality is particularly entrenched in key sectors such as agriculture, retail trade, transportation, construction, and small-scale services — areas that provide livelihoods for millions of Nigerians outside formal employment structures.

“Large informal economies constrain fiscal capacity, productivity growth and policy effectiveness,” the ratings agency stated.

Sub-Saharan Africa remains the world’s most informal region, but Nigeria stands out due to the sheer size of its economy and population. The country’s informal sector is among the largest in the region, according to Moody’s.

While a large informal economy is not inherently a sign of weakness — it provides essential employment and acts as a critical safety net during economic downturns — its scale in Nigeria poses significant drawbacks for public finances and development planning.

Nigeria’s tax-to-GDP ratio remains among the lowest globally, despite modest recent improvements. Policymakers have consistently flagged revenue mobilisation as a top priority.

The African Development Bank has estimated that African countries could collectively mobilise an additional $469 billion annually through stronger tax administration, digitalisation, and compliance measures, without raising tax rates.

Moody’s suggested that successfully reducing informality could strengthen public finances and enhance Nigeria’s economic resilience. However, achieving this will require sustained, multifaceted reforms that balance formalisation incentives with the realities of millions of Nigerians who rely on informal activities for survival.

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