Fitch Upgrades Nigeria Rating, Cites Broad Commitment to Reform
Fitch Ratings has upgraded Nigeria’s creditworthiness or Long-Term (LT) Foreign-Currency (FC) Issuer Default Rating (IDR) to ‘B’, from ‘B-‘ with stable outlook.
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.
The ratings agency said 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.
The stable outlook reflects Fitch’s expectation that the macroeconomic policy stance will sustain improvements in the functioning of the FX market and support the move to lower inflation, although it will likely remain far higher than rating peers.
Additionally, 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.
It said 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.
The rating note said 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”, Fitch said.
It also noted that the CBN has tightened monetary conditions through a combination of policy rate hikes to 27.5%, up 875 bp 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.
“We project inflation, which reached 23.2% year-on-year in February 2025 under the recently rebased CPI, to average 22% in 2025 and 20% in 2026. Fitch said it does not anticipate a premature easing of monetary policy that would undermine the benign effects of the policy adjustment, given high inflation.
According to the rating agency, Nigeria’s external buffers have benefitted from the policy reforms and associated increase in formalised FX transactions. Gross official reserves rose to USD41 billion at end-2024, from a low of USD32 billion in mid-2024, but have since dropped to USD38 billion – covering about five months of current external payments (CXP) – due mainly to higher debt service payments.
“We project the current account surplus, estimated at 6.6% of GDP in 2024, to average 3.3% of GDP in 2025-2026. Together with modest capital inflows, this underpins our forecast for FX reserves to average 5.0 months of CXP, exceeding the ‘B’ median of 4.4 months”.
Fitch noted a lack of detail on the composition of reserves amid recent indications by the central bank that place net reserves at USD23 billion at the end of 2024, up from about USD4 billion at the end of 2023.
Nonetheless, Fitch analysts estimate that roughly 14% of gross reserves comprise FX swaps with local banks, down from 25% in November 2024 assessment, amid increased efforts by the CBN to reduce FX liabilities.
Fitch expects Nigeria’s oil refining capacity to increase in 2025 as the Dangote refinery scales up operations to reach 0.65 mbpd capacity by end-2Q25 from 0.55 mbpd currently.
The refinery is operating at 85% of capacity and meets daily domestic consumption estimated at 50 million litres, helping to reduce oil-related import costs, which account for about 30% of goods imports. However, the refinery continues to rely on foreign markets for a portion of its crude oil due to Nigeria’s limited production capacity.
“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 level.
Meanwhile, Fitch said it expects the impact of US tariffs on Nigeria’s trade position with the US to be limited, amid the exclusion of oil-related exports, which accounted for about 92% of total exports (nearly 2% of GDP) to the US in 2023.
Analysts said lower oil prices pose a bigger risk as they would weaken external buffers and fiscal metrics and test the new policy framework. Nevertheless, greater policy flexibility enhances Nigeria’s ability to deal with shocks.
Fitch forecasts the budget deficit will widen in 2025-2026, averaging 4.2% of GDP, even as revenue increases. Expenditure will be driven by higher wages, social and security expenses, debt servicing costs and election-related expenses ahead of the 2027 elections.
General government (GG) revenue will be bolstered by non-oil tax revenue reforms although political challenges and high implementation risks may hinder progress.
“We expect GG revenue/GDP to rise but to remain structurally low, largely accounting for a high GG interest/revenue ratio, above 30%, 30%with a Federal government (FG) interest/FG revenue ratio of nearly 50%. Banks’ ample liquidity and strong demand for government securities should support domestic financing capacity”.
Fitch analysts expect GG debt/GDP to decline marginally in 2025-2026, to 51%, in line with the ratings agency’s ‘B’ median due to strong nominal GDP growth. Nigeria’s public debt has a fairly long average maturity of 10.9 years, and over half is local-currency denominated.
Government external debt service is moderate but expected to rise to USD5.2 billion in 2025 – with USD4.5 billion of amortisations, including a USD1.1 billion Eurobond repayment due in November 2025-—from USD4.7 billion in 2024 and fall to USD3.5 billion in 2026.
There was a minor delay in paying a coupon due on 28 March 2025 on the sovereign’s USD4 billion Eurobond, highlighting public finance management challenges.
Fitch expects the banking sector’s non-performing loan ratio to rise in 2025 due to high inflation and interest rates. It revealed that stage 2 loans are high in some banks, and the expected lifting of forbearance measures on loan classification could further increase impaired loans.
However, loan books are small, accounting for 35% of total assets, limiting the impact on banks’ performance. Analysts said significant progress has been made in raising capital to achieve compliance with higher minimum paid-in capital requirements by end-1Q26, although increased M&A activity is still likely among third-tier banks.
The windfall tax on realised gains on FX transactions announced in 2024 appears to be much less significant than initially feared and will be absorbed by strong profitability, Fitch said. #Fitch Upgrades Nigeria Rating, Cites Commitment to Reform #Poland to Supply U.S. with 18,000 Tonnes of TNT Worth $300m
