Fitch Ratings, a global rating agency, has affirmed long-term foreign-currency issuer default outlook at ‘B-‘ with a positive outlook, listing the country’s progress in implementing reforms that improve policy coherence.
It said that Nigeria’s ‘B-‘ rating is supported by its large economy, relatively developed and liquid domestic debt market, and large oil and gas reserves.
In May the agency revised Nigeria’s long-term credit default rating upward from stable to positive on the back of reforms in the foreign exchange market, oil industry and monetary policy.
“The rating is constrained by weak governance indicators relative to peers, high hydrocarbon dependence, weak net foreign-exchange (FX) reserves, high inflation, ongoing security challenges, and structurally low, albeit improving, non-oil revenue,” the rating agent said.
It said that the positive outlook reflects progress in implementing reforms that improve policy coherence and credibility, and reduce economic distortions and near-term risks to macroeconomic stability.
These reforms include exchange rate liberalisation, monetary policy tightening and efforts to restore fiscal discipline, including the absence of deficit monetisation in recent months and phasing out fuel subsidies.
“The subsequent rise in foreign portfolio investment inflows, greater formalisation of FX activity and official FX inflows ($48 billion in the first half of 2024, compared with $34 billion in the same period last year) have supported the recovery in international reserves,” it said.
However it said that short-term challenges remain such as exchange rate volatility, and capital inflows have decreased in recent quarters despite high market yields, “possibly due to investor concerns over the durability of the reform programme.”
“Additionally, continued high fiscal spending, along with exchange rate liberalisation, supply shocks, and the deregulation of gasoline prices (resulting in a near 65 percent year-on-year rise in September 2024) have accentuated Nigeria’s structurally high inflation,” it said.
The rating agency said that renewed external liquidity stress, Higher risk of debt servicing difficulties and deterioration in the credibility and consistency of monetary and fiscal policy could individually or collectively lead to a negative rating.
However, it also mentioned that a reduction in external vulnerabilities, confidence that the improvement in the credibility and consistency of Nigeria’s policy mix will reign in inflation, stabilise FX, and sustainable improvement in public finances, potentially arising from an increase in oil revenue could collectively or individually lead to an upgrade in rating.
