Fitch raises Nigeria’s credit outlook from stable to positive

Global credit ratings agency, Fitch, has revised Nigeria’s long-term credit default rating upward from stable to positive on the back of reforms in the foreign exchange market, oil industry and monetary policy over the past one year.  

The agency noted that the upward revisions stem from actions of the Federal Government to bring about macroeconomic stability and improve credibility.  

It listed some of the reforms informing its outlook as follows: adjustments in exchange rate and monetary policy frameworks, reduction in fuel subsidies, improved collaboration between the fiscal and monetary side of the economy, and reduction in Ways and Means borrowing and others.  

• It stated, “Fitch Ratings has revised the Outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable, and affirmed the IDR at ‘B-” 
• “The Positive Outlook partly reflects reforms over the last year to support the restoration of macroeconomic stability and enhance policy coherence and credibility.” 
• “The reforms have reduced distortions stemming from previous unconventional monetary and exchange rate policies, resulting in the return of sizeable inflows to the official foreign exchange (FX) market. 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.” 

Furthermore, the report praised the Central Bank of Nigeria (CBN)’s role in eliminating distortions in the foreign exchange market, attracting foreign inflows into the market and monetary policy tightening.  

However, the agency raised concerns over continued volatility in the forex market, elevated inflation levels and opacity on the true size of the country’s foreign reserves.  

It also expressed worry over lagging oil production levels, the need to improve non-oil revenues and high interest payment occasioned by currency depreciation and increase rates of borrowing.  

Backstory 

Last year, the global ratings agency affirmed Nigeria’s credit outlook at stable on the back of recent reforms undertaken by President Tinubu on assumption into office. The outlook then raised concerns over the proposed $10 billion loan to offset the forex backlog.  

Six months after the last revision, the Federal Government and the CBN have engaged in major policy reforms. During the period, the CBN cleared the backlog of forex forwards owed, increased the monetary policy rate (MPR) by 600 basis points and raised capital requirements for different tiers of banks across the country.  

However, the period also saw a significant volatility in the forex market but increased foreign inflows on the back of high rates of return.  

Also, crude oil production was below the budget benchmark of 1.75 million barrels daily during the first quarter of 2024 despite oil prices averaging around $80 per barrel during the period.  

The Federal Government’s fuel subsidy payment gulped about $10 billion in 2022.