Fitch Raises Nigeria’s Credit Outlook to Positive as FX Reserves Strengthen

Fitch Ratings has revised Nigeria’s credit outlook to positive from stable, citing stronger foreign exchange reserves, monetary reforms and improved confidence in the continuity of economic policies ahead of the country’s 2027 elections.

The agency affirmed Nigeria’s long-term issuer default ratings at B, indicating that the country remains in a speculative-grade category despite improvements in its external position and economic policy framework.

Fitch expects the government to maintain key reforms following the elections, citing the ruling party’s control of most of Nigeria’s 36 states and a fragmented opposition. It warned, however, that fiscal slippage, weaker capital inflows or significant social instability could disrupt the current trajectory.

Nigeria’s gross foreign exchange reserves reached 54.9 billion US dollars on September 25, 2026, up from 32 billion US dollars in mid-April 2024, supported by portfolio inflows, export receipts, remittances and increased formalisation of foreign exchange transactions.

The agency forecasts the country’s current account surplus will widen to 6.4 percent of gross domestic product in 2026 before narrowing in 2027 as global oil prices decline. It expects foreign exchange reserves to cover 6.3 months of current external payments by the end of this year, with coverage remaining above the median for countries with comparable B ratings in 2027 and 2028.

Reserve quality has also improved as the Central Bank of Nigeria reduced its foreign exchange liabilities. The central bank reported net foreign exchange reserves of 34.8 billion US dollars at the end of 2025, compared with about four billion US dollars at the end of 2023.

Fitch said monetary and exchange rate reforms had increased naira flexibility, supported disinflation and improved the transmission of monetary policy. It expects average annual inflation to fall to 15.4 percent in 2026, less than half its 2024 level, although the forecast remains substantially above the 5.6 percent median for countries rated B.

The central bank’s September policy adjustment was viewed by Fitch as a calibrated easing consistent with improving monetary policy transmission. The retention of a 45 percent cash reserve requirement is expected to continue absorbing domestic currency liquidity and limiting credit growth, while changes to the policy corridor and wider access to open market operations could improve policy effectiveness.

Despite the improving outlook, inflation remains a major constraint. Fitch cited elevated food and fuel prices, external risks and the potential impact of further increases in pump prices on household incomes.

Nigeria’s oil sector has also shown signs of recovery. Crude oil production, excluding condensates, rose 10 percent quarter on quarter in the second quarter of 2026, averaging 1.52 million barrels a day and meeting the country’s 1.5 million-barrel daily OPEC target since May.

The agency expects production to remain around current levels in the near term, supported by improved security and domestic investment, although output is still below pre-pandemic levels.

The ramp-up of the Dangote refinery and the rehabilitation of other facilities have reduced imports of refined petroleum products and demand for foreign exchange. However, limited domestic crude supply means Nigeria will continue to rely partly on imported crude.

Fitch forecasts Nigeria’s economy will expand by 4.3 percent in 2026, compared with four percent in 2025, driven by non-oil activity and continued growth in the oil sector. It expects annual growth to remain above four percent in 2027 and 2028.

Public finances remain a significant weakness. The agency projects the general government fiscal deficit will widen to 3.6 percent of GDP in 2026, an increase of 0.5 percentage points, as spending on social programmes, security, personnel, capital projects and state governments rises.

Tax reforms are expected to lift non-oil revenue to 7.5 percent of GDP, equivalent to 66 percent of government revenue, through improvements in administration, compliance and digitisation. However, Fitch expects implementation constraints to limit the gains, leaving government revenue as a share of GDP below the median for countries rated B.

The agency forecasts general government debt will average 32 percent of GDP in 2026-2028, down from 40 percent in 2024, largely because of strong nominal economic growth. The projected ratio is below the 56 percent median for B-rated sovereigns.

Debt-servicing costs will nevertheless continue to constrain fiscal flexibility. Fitch expects the ratio of general government interest payments to revenue to average 27 percent over 2026-2028, compared with a 14 percent median for similarly rated countries. At the federal level, the ratio is expected to remain above 50 percent.

Nigeria’s ratings also reflect its large economy, relatively developed domestic debt market and substantial oil and gas reserves. These strengths are offset by weak governance indicators, high hydrocarbon dependence, persistent inflation, security challenges and structurally low government revenue.

Fitch said a sustained improvement in macroeconomic policy credibility, continued disinflation, stronger international reserves and reforms to increase domestic non-oil revenue could support a future upgrade.

Conversely, renewed inflationary pressures resulting from weaker monetary or fiscal discipline, external liquidity stress caused by lower oil prices, or a sustained widening of the fiscal deficit could lead to negative rating action.

Source: FSX Business News