One of the global rating agencies, Fitch Ratings, has upgraded Nigeria’s Long-Term (LT) Foreign-Currency (FC) Issuer Default Rating (IDR) to ‘B’, from ‘B-‘.
It also assigned Nigeria a stable outlook. According to its assessment on Nigeria obtained on its website yesterday, the upgrade of the West African country reflected 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 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,” Fitch added.
It pointed out that the Stable Outlook reflects its expectation that Nigeria’s macroeconomic policy stance would sustain improvements in the functioning of the forex (FX) market and support the move to lower inflation, “although it will likely remain far higher than rating peers.”
“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.
“Greater formalisation of 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.
“Net official FX inflows through the CBN and autonomous sources rose by about 89 percent in 4Q24, compared to an eight percent rise in 4Q23. We expect continued formalisation of FX activity to support the exchange rate, although we anticipate modest depreciation in the short term,” it added.
The CBN has tightened monetary conditions through a combination of policy rate hikes to 27.5% (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.
“We project inflation, which reached 23.2 percent year-on-year in February 2025 under the recently rebased CPI, to average 22% in 2025 (‘B’ median 4.3%) and 20% 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 added
Fitch Upgrades Nigeria To ‘B’ Rating, Stable Outlook On Policy Reforms