Renewed Hope policies gain Increased Confidence as Fitch Assigns a Stable Rating to Nigeria’s economy
In a notable advancement, Fitch Ratings has revised Nigeria’s credit outlook from Negative to Stable while keeping its Long-Term Foreign-Currency Issuer Default Rating at ‘B’. This upgrade signals the agency’s trust in the reforms enacted by President Tinubu’s administration since June 2023. These reforms, which involve exchange rate liberalization, the elimination of fuel subsidies, stricter monetary policies, and diminished deficit monetization, are considered vital for enhancing macroeconomic stability and boosting policy credibility in Nigeria, Africa’s largest economy.
This credit outlook improvement underscores the government’s initiatives to tackle economic challenges and enhance the investment landscape. Despite persistent issues such as high inflation—projected to hit 22% by 2025—and external threats like potential tariffs from the U.S., Fitch Ratings believes Nigeria is making progress toward economic recovery. The agency’s assessment is further bolstered by an increase in foreign investments and a rise in oil production, which is expected to reach 1.43 million barrels per day by 2025.
The reforms introduced by President Tinubu’s administration aim to confront some of the enduring obstacles in Nigeria’s economy. For example, the liberalization of the exchange rate is anticipated to enhance transparency and minimize the black market premium, thereby making the economy more appealing to foreign investors. Simultaneously, the removal of fuel subsidies aims to shift financial resources from subsidies to more productive areas of the economy.
The Central Bank of Nigeria (CBN)’s tighter monetary policy is viewed as a constructive approach, likely to help manage inflation and stabilize the economy. Additionally, reducing deficit monetization marks a crucial step towards fiscal responsibility by decreasing the government’s dependence on the CBN for financing its deficits.
While the upgrade is encouraging, Fitch Ratings has also pointed out ongoing challenges that Nigeria must tackle. The significant inflation rate—forecasted to reach 22% in 2025—remains a major issue, as it can diminish purchasing power, limit savings, and hinder investment. The agency has also raised concerns about external risks, such as possible U.S. tariffs, that could affect Nigeria’s trade balance and economic stability.
Moreover, inadequate non-oil revenue and vulnerabilities within the banking sector are critical issues that necessitate attention. The government needs to boost non-oil revenues through tax reforms and enhance tax collection, while also fostering growth in non-oil sectors, including agriculture, manufacturing, and services. The stability of the banking sector is also vital for overall financial security, requiring action to address non-performing loans and improve regulatory practices.
Despite these existing challenges, Fitch Ratings’ upgrade of Nigeria’s credit outlook to Stable reflects a positive trajectory in the nation’s economy. Increased foreign investment and rising oil output are expected to contribute to economic expansion, while government reforms are seen as constructive measures.
This upgrade is likely to enhance Nigeria’s access to international capital markets by lowering borrowing costs and bolstering investor confidence. Consequently, this improvement may facilitate government financing for development projects and further the implementation of its economic plans. Overall, Fitch Ratings’ adjustment of Nigeria’s credit outlook signals the government’s commitment to addressing economic difficulties. As Nigeria progresses through these challenges, the continuation of reform efforts will be key to achieving sustainable growth and improving citizens’ living standards.
