Fitch Ratings upgrades Nigeria to ‘B’ stable outlook

•Expects limited impact of US tariffs on Nigeria’s trade position

Fitch Ratings has upgraded Nigeria’s Long-Term (LT) Foreign-Currency (FC) Issuer Default Rating (IDR) to ‘B’, from ‘B-’ with a stable outlook based on the nation’s policy reforms.

In the same vein, Fitch expects the impact of United States of America (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 percent of total exports, nearly 2 percent of GDP, to that country in 2023.

“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 stated.

In its latest ratings of Nigeria, Fitch said 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.

These measures, it noted, 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.

It stressed, “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.”

On exchange rate reforms, higher inflows, Fitch said greater formalisation of foreign exchange (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 percent depreciation in 2024, closing the spread between the official and parallel exchange rates.

Fitch highlighted that Net official FX inflows through the CBN and autonomous sources rose by about 89 percent in the fourth quarter of 2024 (Q4 2024), compared to an 8 percent rise in Q4 2023, and added, “We expect continued formalisation of FX activity to support the exchange rate, although we anticipate modest depreciation in the short term.”

The ratings agency affirmed that the CBN has tightened monetary conditions through a combination of policy rate hikes to 27.5 percent (up 875bp 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.

It stressed, “We project inflation, which reached 23.2 percent year-on-year in February 2025 under the recently rebased CPI, to average 22 percent in 2025 (‘B’ median 4.3 percent) and 20 percent in 2026. Fitch does not anticipate a premature easing of monetary policy that would undermine the benign effects of the policy adjustment, given high inflation.”

It said 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 percent of GDP in 2024, to average 3.3 percent 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,” it stated.

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.

It said the refinery is operating at 85 percent of capacity and meets daily domestic consumption estimated at 50 million litres, helping to reduce oil-related import costs accounting for about 30 of percent 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 levels,” Fitch stated.

On reduced FX liabilities, Fitch said there is a lack of detail on the composition of reserves amid recent indications by the CBN that place net reserves at USD23 billion at end-2024, up from about USD4 billion at end-2023.

It added that: “Nonetheless, we estimate that roughly 14 percent of gross reserves comprise FX swaps with local banks, down from 25 percent in our November 2024 assessment, amid increased efforts by the CBN to reduce FX liabilities.”

Joseph Inokotong