In a vote of confidence for recent economic policies, global rating agency Fitch has revised Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) outlook to “Positive” from “Stable”.
While maintaining the current IDR at “B-“, this upgrade signifies a potential credit rating improvement in the near future.
Fitch attributes the positive outlook to reforms implemented by the Nigerian government over the past year.
These reforms target macroeconomic stability and focus on foreign exchange management, oil sector improvements, and a more coherent monetary policy. The agency acknowledges these efforts as reducing distortions caused by previous unconventional policies.
In its statement issued on Friday, Fitch explained, “The Positive Outlook partly reflects reforms over the last year to support the restoration of macroeconomic stability and enhance policy coherence and credibility.
“Exchange rate and monetary policy frameworks have been adjusted, fuel subsidies reduced, coordination between the ministry of finance and the Central Bank of Nigeria improved, central bank financing of the government scaled back and administrative efficiency measures are being taken to raise the currently low government revenue, as well as oil production.
“The reforms have reduced distortions stemming from previous unconventional monetary and exchange rate policies, resulting in the return of sizable inflows to the official foreign exchange market.
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“Nevertheless, we see significant short-term challenges, notably, inflation is high and the FX market has yet to stabilise, and the durability of the commitment to reform is to be tested.
“Fitch anticipates further increases in the CBN monetary policy rate in 2H24 (following the 600bp hike to 24.75 per cent since February 2024 alongside tightening of reserve requirements) and strengthening of monetary policy transmission, after the recent resumption of open market operations at rates closely aligned to the MPR. We project inflation, which rose to 33.2 per cent yoy in March due partly to exchange rate pass-through and rising food prices, to average 26.3 per cent in 2024 and 18.2 per cent in 2025, still well above our projected ‘B’ median of 4.5 per cent.”
The upgrade is a welcome sign for Nigeria, suggesting a potentially improved ability to access credit on international markets. This could translate to lower borrowing costs for the government, freeing up resources for critical investments in infrastructure and social programs.
However, analysts caution that challenges remain. Fitch highlights persistently high inflation and an unstable currency market as key hurdles for Nigeria’s economic stability. Addressing these issues will be crucial in securing a credit rating upgrade.
The success of the reforms also hinges on their long-term sustainability. Experts urge continued commitment from the government to ensure the positive trajectory continues. Additionally, increasing global oil prices, a key revenue source for Nigeria, could further bolster the country’s economic prospects.
While the positive outlook is a cause for cautious optimism, Nigerians should be aware that significant hurdles remain. The government’s ability to navigate these challenges and sustain the reform momentum will determine whether the credit rating improves and translates into tangible benefits for the citizens.
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