Fitch Affirms Nigeria’s ‘B-‘ Credit Outlook

Fitch Ratings, the global credit rating agency, has maintained Nigeria’s long-term foreign-currency issuer default outlook at ‘B-‘ with a stable outlook. In its assessment, the agency highlighted several key strengths and challenges facing the nation.

Strengths:

1. Large Economy: Nigeria’s economy remains one of its primary strengths, characterized by its significant size and potential for growth.
2. Developed and Liquid Domestic Debt Market: The country boasts a mature and liquid domestic debt market, which provides stability and investment opportunities.
3. Abundant Oil and Gas Reserves: Nigeria possesses substantial oil and gas reserves, contributing to its revenue and economic potential.

In response to this affirmation, Mr. Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), reiterated his commitment to enhancing the impact of the apex bank’s policies on the lives of Nigerians. The role of the central bank in shaping the nation’s economic landscape was emphasized during a meeting with former CBN Governor, Mr. Muhammadu Sanusi II.

However, Fitch Ratings also pointed out several challenges that constrain Nigeria’s credit rating:

1. Weak Governance: The nation faces governance issues that affect its creditworthiness.
2. Low Non-Oil Revenue: Nigeria’s non-oil revenue remains structurally low, affecting its fiscal sustainability.
3. High Hydrocarbon Dependence: The country’s heavy reliance on hydrocarbon resources leaves it vulnerable to oil price fluctuations.
4. Security Challenges: Persistent security challenges pose a significant obstacle to economic stability.
5. High Inflation: Nigeria struggles with high inflation rates, which impact the cost of living and investment.
6. Low Net Foreign Exchange Reserves: The nation’s foreign exchange reserves remain low, affecting its ability to manage currency fluctuations.
7. Exchange Rate Framework Weakness: The exchange rate framework has shown weaknesses, leading to concerns about its stability.

Fitch Ratings acknowledged the government’s efforts to address these challenges, including steps to reduce fuel subsidies and reform the exchange rate framework. Nevertheless, it expressed concerns about potential backtracking on reforms, particularly in the foreign exchange market.

The report also highlighted issues with the Central Bank of Nigeria’s (CBN) net foreign-exchange position, indicating that it was weaker than previously understood. This discrepancy raises questions about the nation’s financial stability.

While Nigeria has made progress in reforming its economy, Fitch Ratings pointed out that there are still significant socio-political challenges that need to be addressed. These include the risk of inflation and the impact of exchange rate liberalization on foreign capital inflows.

Despite these challenges, Fitch Ratings predicted a moderate increase in Nigeria’s oil production and a narrowing of budget deficits in the coming years. However, it stressed the need for continued efforts to mobilize non-oil tax revenue to achieve fiscal sustainability.

In summary, Fitch Ratings’ assessment of Nigeria’s credit outlook acknowledges its strengths as a large economy with abundant resources but also highlights the challenges it faces, especially in terms of governance, revenue generation, and exchange rate stability. The nation’s ability to address these challenges will be crucial in shaping its economic future.