Fitch Revises Nigeria’s Credit Outlook Upward ‘from stable to positive’ Following Economic Reforms

In a significant boost to Nigeria’s economic prospects, global credit ratings agency Fitch has elevated the nation’s long-term credit default rating from stable to positive. 

The upward revision comes as a validation of the sweeping reforms implemented across various sectors, including the foreign exchange market, oil industry, and monetary policy, over the past year. 

Fitch credits these reforms for fostering macroeconomic stability and enhancing policy coherence and credibility, signaling a potential turning point for Africa’s largest economy.

The agency commended the Federal Government’s proactive measures aimed at restoring stability and credibility, citing adjustments in the exchange rate and monetary policy frameworks, reduction in fuel subsidies, and improved collaboration between fiscal and monetary authorities. 

“Fitch Ratings has revised the Outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable, and affirmed the IDR at ‘B-,” Fitch said. 

“The Positive Outlook partly reflects reforms over the last year to support the restoration of macroeconomic stability and enhance policy coherence and credibility.” 

Fitch noted that the reforms have curtailed distortions stemming from unconventional policies, thereby attracting significant inflows to the official foreign exchange market. However, the rating agency remains cognizant of short-term challenges, such as persistently high inflation and ongoing volatility in the forex market, underscoring the need for sustained commitment to reform efforts.

Central to Nigeria’s economic resurgence has been the pivotal role played by the Central Bank of Nigeria (CBN) in eliminating distortions in the forex market and tightening monetary policy.

In January, Fitch raised concerns about Nigeria’s economic difficulties, citing ongoing foreign exchange shortages and a rapidly increasing debt service-to-revenue ratio as key factors contributing to a precarious sovereign credit rating.

Gaimin Nonyane, Fitch’s Director of Middle East and Africa Sovereigns, expressed concern regarding the CBN’s struggles to accumulate adequate foreign exchange reserves, which leaves them ill-prepared to address the backlog of forex and meet the substantial external financing requirements of the private sector.

Toby Iles, Fitch’s Head of Middle East and Africa Sovereigns, echoed Nonyane’s concerns about Nigeria’s economic vulnerability, particularly with the interest payments to revenue ratio exceeding 40%. This ratio, four times higher than the median for B-rated sovereigns, presented a significant weakness for the country’s credit rating.

Despite commendation for these recent efforts, Fitch expressed reservations over continued forex market volatility, elevated inflation levels, and opacity surrounding the country’s foreign reserves. 

Additionally, concerns linger over lagging oil production levels, necessitating efforts to diversify non-oil revenues and mitigate high-interest payments arising from currency depreciation and increased borrowing.

The backdrop to this latest revision stems from Nigeria’s journey towards economic revitalization under President Tinubu’s administration. Recent policy reforms, including the clearance of forex forwards backlog, monetary policy rate hikes, and stringent capital requirements for banks, reflect a concerted effort to address structural imbalances and bolster investor confidence. 

However, challenges persist, with crude oil production falling short of targets despite favorable oil prices and the looming specter of fuel subsidy payments adding to fiscal pressures.

Against the backdrop of Nigeria’s economic challenges, which experts say required borrowing to curtail, the positive outlook from Fitch serves as a vote of confidence in the nation’s reform agenda. Yet, the road ahead remains fraught with challenges, necessitating unwavering commitment from policymakers to sustain momentum and deliver tangible improvements in economic fundamentals. 

Economists said with prudent policy management and strategic interventions, Nigeria can capitalize on its vast potential and chart a path toward sustainable economic growth.