Fitch Ratings has upgraded Nigeria’s outlook from Negative to Stable.
The global rating agency noted that Nigeria’s long-term foreign currency rating remains at ‘B’, adding that the economic course set since mid-2023 is starting to deliver positive result.
Fitch noted that the reforms such as exchange rate liberalisation, tighter monetary policy, removal of fuel subsidies, and an end to deficit monetisation, have improved macroeconomic credibility, reduced distortions, and enhanced resilience.
It said, “The upgrade reflects increased confidence in the government’s broad commitment to policy reforms implemented since its move to orthodox economic policies in June 2023, including exchange rate liberalisation, monetary policy tightening and steps to end deficit monetisation and remove fuel subsidies.”
“These have improved policy coherence and credibility and reduced economic distortions and near-term risks to macroeconomic stability, enhancing resilience in the context of persistent domestic challenges and heightened external risks.”
Fitch added that the stable outlook reflects its expectation that the macroeconomic policy stance will support the move to lower inflation and sustain improvements in the foreign exchange (FX) market’s operation, though it will likely remain much higher than rating peers.
It added, “We anticipate a continued reduction in external vulnerabilities through further easing of domestic FC supply constraints, while renewed energy sector reforms should help sustain current account surpluses.”
“Greater formalisation of FX activity including the Central Bank of Nigeria’s (CBN) recent introduction of an electronic FX matching platform and a new FX code to enhance transparency and efficiency, along with monetary policy tightening, has led to a greater rise in FX liquidity and general stability in the FX market after a 40% depreciation in 2024, closing the spread between the official and parallel exchange rates.”
“Net official FX inflows through the CBN and autonomous sources rose by about 89% in
4Q24, compared to an 8% rise in 4Q23. We expect continued formalisation of FX activity to support the exchange rate, although we anticipate modest depreciation in the short term.”
“The CBN has tightened monetary conditions through a combination of policy rate hikes to 27.5% (up 875bp since February 2024) and use of prudential and operational tools such as open market operations (at rates closely aligned to the MPR) to strengthen monetary policy transmission after years of financial repression.”
Fitch projected inflation, which hit 23.2 percent year-on-year in February under the recently rebased consumer price index (CPI), to average 22% in 2025 (‘B’ median 4.3%) and 20% in 2026.
It also predicted a premature easing of monetary policy that would undermine the benign effects of the policy adjustment, given high inflation.
In the medium-term, Fitch noted that the rating was driven by Nigeria’s external reserves, which have rebounded significantly following recent policy reforms, although there are still challenges.
The agency said gross official reserves reached $41 billion by the end of 2024, recovering from a low of $32 billion in mid-2024, but later declined to $38 billion due to increased debt service payments.
The global rating agency projected the current account surplus, estimated at 6.6 percent of gross domestic product (GDP) in 2024, to average 3.3% of GDP in 2025-2026.
It said, “There is a lack of detail on the composition of reserves amid recent indications by the central bank that place net reserves at USD23 billion at end-2024, up from about USD4 billion at end-2023.”
“Nonetheless, we estimate that roughly 14% of gross reserves comprise FX swaps with local banks, down from 25% in our November 2024 assessment, amid increased efforts by the CBN to reduce FX liabilities.”
Fitch said Nigeria’s oil refining sector is poised for a boost in 2025 with the scaling-up of the Dangote refinery to reach 0.65 million barrels per day (bpd) capacity by the end of the second quarter from 0.55 mbpd currently.
It said, “We expect crude oil production (excluding condensates) to increase in 2025-2026, averaging 1.43 mbpd, from 1.34 mbpd in 2024, helped by improved onshore surveillance and increased investments by local oil companies.”
“However, underinvestment and production outages persist, constraining production below 2019 levels.”
The agency predicted that the impact of US tariffs on Nigeria’s trade position with US will be limited, amid the exclusion of oil-related exports, which accounted for about 92% of total exports (nearly 2 percent of GDP) to US in 2023.
It added, “Lower oil prices pose a bigger risk as they would weaken external buffers and fiscal metrics and test the new policy framework.”
