Fitch Ratings has revised Nigeria\u2019s credit outlook to \u2018Stable\u2019 from \u2018Negative\u2019, reflecting growing confidence in the economic reform agenda of President Bola Ahmed Tinubu\u2019s administration. While the country\u2019s long-term foreign currency issuer default rating remains at \u2018B\u2019, the outlook upgrade signals improved sentiment towards Nigeria\u2019s macroeconomic management.<\/p>\n
In its latest assessment, Fitch said the government\u2019s decisive policy shifts since mid-2023\u2014particularly in foreign exchange liberalisation, fuel subsidy removal, monetary tightening, and a halt to central bank deficit financing\u2014have begun to improve macroeconomic credibility and reduce structural vulnerabilities.<\/p>\n
\u201cWe are seeing clear signs of increased commitment to market-based reforms under President Tinubu\u2019s administration,\u201d Fitch stated. \u201cWhile challenges remain, Nigeria\u2019s trajectory has shifted toward stability and greater investor confidence.\u201d<\/p>\n
Foreign Exchange Reforms Bolster Stability, But Headwinds Loom<\/p>\n
A major catalyst for Fitch\u2019s outlook upgrade was the Central Bank of Nigeria\u2019s introduction of a new FX matching platform and FX code in 2024, designed to enhance price discovery and transparency. Following a sharp 40% naira depreciation last year, these reforms helped narrow the spread between the official and parallel markets and revived investor confidence.<\/p>\n
\u2022Net FX inflows rose 89% year-on-year in Q4 2024, compared to just 8% in the same period in 2023.<\/p>\n
\u2022However, Fitch warns of short-term pressures ahead, including modest further depreciation of the naira as global uncertainties weigh on investor sentiment.<\/p>\n
\u2022Of particular concern is the newly imposed 14% U.S. tariff on Nigerian exports, which business leaders and analysts\u2014including JPMorgan\u2014say could erode FX earnings and renew exchange rate volatility.<\/p>\n
Monetary Tightening Slows Inflation, But Price Pressures Persist<\/p>\n
Despite tighter monetary policy, Nigeria\u2019s inflation remains stubbornly high. Headline inflation stood at 23.2% in February 2025, based on a rebased Consumer Price Index. This is still significantly above the \u2018B\u2019 rating peer median of 4.3%.<\/p>\n
To rein in inflation, the Central Bank has hiked interest rates by 875 basis points since February 2024, pushing the benchmark policy rate to 27.5%. Fitch expects the CBN to maintain a hawkish stance, projecting average inflation of 22% in 2025 and 20% in 2026, to preserve monetary stability.<\/p>\n
External Buffers Rebuild Amid Reserve Pressures<\/p>\n
Fitch also noted improvements in Nigeria\u2019s external accounts. Gross foreign reserves climbed to $41 billion at end-2024, though they have since eased to $38 billion due to debt repayments\u2014including a $1.1 billion Eurobond maturity due in November 2025.<\/p>\n
\u2022Nigeria recorded a current account surplus of $6.8 billion in 2024 (6.6% of GDP), aided by reduced import costs and formalised FX transactions.<\/p>\n
\u2022Net external reserves currently stand at $23 billion, while reliance on FX swaps has decreased significantly, now accounting for just 14% of gross reserves, down from 25% in late 2023.<\/p>\n
Energy, Oil Output Recovery Provide Tailwinds<\/p>\n
Nigeria\u2019s energy landscape is also evolving. The Dangote Refinery is expected to ramp up production to 650,000 barrels per day (bpd) by mid-2025, from the current 550,000 bpd. This is expected to cut down fuel import dependence, which currently represents nearly a third of Nigeria\u2019s total goods imports.<\/p>\n
On the upstream side, oil production (excluding condensates) is forecast to reach 1.43 million bpd in 2025, up from 1.34 million bpd. However, output remains below pre-2019 levels, reflecting the lingering impact of underinvestment and pipeline disruptions.<\/p>\n
Fiscal Pressures and Banking Sector Strains Persist<\/p>\n
Despite progress on reforms, Nigeria\u2019s fiscal outlook remains strained. Fitch projects a general government fiscal deficit of 4.2% of GDP over 2025\u20132026, driven by rising public sector wages, debt service obligations, and pre-election spending.<\/p>\n
\u2022Interest-to-revenue ratios remain among the highest globally\u2014nearly 50% at the federal level and 30% overall, limiting fiscal flexibility.<\/p>\n
\u2022The banking sector is also feeling the heat, with non-performing loans at 4.9% as of November 2024. Fitch expects this figure to rise further in 2025 due to sustained inflation and high borrowing costs.<\/p>\n
\u2022Smaller banks may struggle to meet new capital requirements, potentially sparking a wave of mergers and acquisitions in the sector.<\/p>\n
Governance Still a Key Constraint<\/p>\n
Fitch cautioned that weak institutional capacity and governance shortfalls continue to weigh on Nigeria\u2019s credit profile. The country ranks in the 19th percentile of the World Bank\u2019s Governance Indicators, reflecting persistent issues with corruption, regulatory enforcement, and rule of law.<\/p>\n
Despite these structural challenges, the outlook revision to \u2018Stable\u2019 signals renewed international optimism about Nigeria\u2019s reform trajectory and economic prospects under the Tinubu administration. However, Fitch stressed that sustaining momentum\u2014especially amid global economic turbulence\u2014will be critical to preserving stability and unlocking long-term growth.<\/p>\n","protected":false},"excerpt":{"rendered":"
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