Weak Economic Data, Rating Concerns Keep Nigeria’s Borrowing Costs High – Oyedele

Nigeria’s weak economic data and credit rating concerns are undermining the country’s ability to borrow cheaply, diverting scarce public funds that could have been invested in roads, education, healthcare and other critical infrastructure, the Minister of Finance, Taiwo Oyedele, has said.

Oyedele said the country’s failure to consistently produce and publish credible economic statistics had left international institutions relying on external sources to assess its economic performance, with implications for its creditworthiness and the cost of accessing funds in global capital markets.

Speaking at Chatham House in London, the minister explained that international credit ratings influence the interest rates countries pay on their debts, warning that Nigeria’s position below investment-grade status was contributing to its high borrowing costs and constraining fiscal space.

“They will take figures from the IMF and say Nigeria is five notches below investment grade. That determines how much we pay to borrow. Because we pay so much to borrow, it takes away the fiscal space we should use to provide roads, education, and health care. It goes round in a circle,” he said.

He cited the country’s tax-to-GDP ratio as an example of the data gaps affecting its international economic assessments, arguing that the absence of consistent official figures had allowed external estimates to shape perceptions of Nigeria’s fiscal performance.

“Something as important as the tax-to-GDP ratio is not produced by the government,” Oyedele said.

He added that the World Bank had recently published an estimate of Nigeria’s tax-to-GDP ratio, leaving international rating agencies to rely on such external assessments in the absence of readily available government data.

“The World Bank released its report on Nigeria two weeks ago and said it was 7.5 per cent. That is 12.5 per cent. The rating agencies will take the figure from the World Bank because they cannot find anything from the government,” he said.

The minister’s comments highlight the importance of reliable economic statistics and credible credit assessments in determining the terms on which Nigeria and other African countries access international financing.

Oyedele also expressed reservations about the immediate impact of the newly established African Credit Rating Agency (ACRA), saying its emergence would not automatically reduce borrowing costs or displace established global rating firms.

He noted that international investors were more likely to rely on established institutions such as S&P Global Ratings, Moody’s and Fitch Ratings until the new agency demonstrated that its assessments were credible and consistent.

Asked whether ACRA would be a game changer for Nigeria and Africa, Oyedele said: “I will be honest. I do not think it will change much, at least not in the medium term. If you have an African rating agency, it is a good starting point, but it will not change a lot. If an investor in London, New York or China wants to invest, whom do you think they will trust, S&P, Moody’s or the African Rating Agency?”

According to him, the agency must establish a record of credible assessments before investors can be persuaded to rely on its ratings when making investment and lending decisions.

“You need to build trust, and it cannot be legislated. Trust is earned over time based on what you do, not just what you say, and on the consistency of your actions,” he said.

Although he acknowledged that the initiative could eventually strengthen Africa’s position in the global credit rating market, he stressed that achieving such recognition would require time and sustained performance.

“It will take time for us to get there. But it is good that Africa is starting something. One day, we might get to the league of the big three rating agencies, and people will start taking us seriously,” he added.

An analyst who spoke with LEADERSHIP on condition of anonymity said ACRA would face significant challenges in gaining acceptance among international investors, particularly those financing African governments through global capital markets.

The analyst said the usefulness of credit ratings depended on the confidence lenders placed in the institutions issuing them, noting that investors would be reluctant to rely on assessments from an agency whose independence and credibility remained uncertain.

“The reason why the credit rating is acceptable is that the lenders, those that have the funds, believe in that credit rating agency and what they are saying,” the analyst said.

“In other words, credit rating is only acceptable to the extent at which the lender believes in the rating that is being issued.”

The analyst identified independence as a critical requirement, warning that the agency could struggle to win international recognition if investors suspected that political considerations influenced its assessments of African governments.

“The rating agency must be independent of the issuer. The question is: are we sure this African rating agency will be independent? And particularly given that the way we are always scared in Africa, you don’t want to write against the government. Are you sure they will issue a bad rating for the government, even when the rating is actually even showing that it should be passed on?” the analyst queried.

Similarly, the Managing Director and Chief Executive Officer of DataPro Limited, Abimbola Adeseyoju, said the agency’s long-term relevance would depend on the confidence investors placed in its assessments rather than the effort invested in establishing it.

Adeseyoju described the launch as a significant milestone achieved after about a decade of efforts but warned that the agency must demonstrate independence from political interests and adopt a robust methodology comparable to international standards.

“The value it will command is, however, not in the intrinsic worth of efforts devoted into it. It is the premium placed on its opinion by investors in Africa and beyond,” he said.

He identified perceived independence from the political actors involved in establishing the agency as a key determinant of its credibility.

“The first is the perceived independence of political actors that midwife its birth. This is key. Otherwise, investors may treat its rating opinions as a souvenir,” he said.

Adeseyoju added that the agency would need a rigorous rating process and methodology that could withstand international scrutiny.

“The second is the rigorous and robustness of its rating process and methodology. To have a global appeal, it must be seen to have adopted standards comparable to the Big three to own its own,” he said.

However, he noted that ACRA could improve credit rating coverage across the continent, where several countries lack formal ratings, potentially giving investors access to more structured information about African sovereign debt and financial instruments.

“On the impact on rating of Africa Sovereign and instruments, there will be more rating visibility as currently not many of African countries have rating. On that positive note more countries within the sub region will carry rating label,” he said.

Offering a more optimistic perspective, Professor of Law and development economist, Tayo Bello, said the agency could help address concerns that established international rating firms did not adequately account for Africa’s economic realities.

Bello said African countries had long argued that assessments by Moody’s, S&P and Fitch reflected biases that contributed to higher borrowing costs across the continent.

“When you talk of Moody’s, S&P and Fitch, the notion from African countries is that they have a passive bias,” he said.

He cited United Nations studies estimating that credit rating assessments had at times been subjective and had cost Africa more than $75.5 billion in borrowing costs.

According to him, an African rating agency could provide a different perspective by incorporating local economic conditions and indigenous data into its assessments, potentially challenging ratings that African governments consider unfavourable.

“First, the fact is that local realities will be considered. That is, indigenous African data will now be available to the experts who also operate it,” Bello said.

He argued that more balanced assessments could help prevent what he described as premature downgrades of African economies, reduce the risk premiums attached to sovereign debt and improve access to long-term financing.

“Most of the African debts are based on sentiment of premium. It lowers the borrowing cost for sovereigns,” he said.

Bello added that more credible assessments reflecting individual countries’ economic conditions could improve investor confidence and encourage greater investment in African economies.

The debate over ACRA’s prospects therefore centres on whether the institution can provide a credible alternative to established global rating agencies while maintaining the independence and methodological standards required to influence international investment decisions.

For Nigeria, Oyedele’s remarks underscore the need to strengthen official economic data systems and improve the credibility of the information used to assess the country’s financial position, even as the new continental agency seeks to establish itself in the global credit-rating market.