By Modupe Gbadeyanka
The long-term foreign-currency issuer default rating of Nigeria has been affirmed at B- by a global rating agency, Fitch Ratings.
The company said in a statement last week that it gave the affirmation despite short-term challenges like the exchange rate volatility, and the decline in capital inflows in recent quarters amid high market yields possibly due to investor concerns over the durability of the reform programme.
Since he assumed office in May 2023, President Bola Tinubu has introduced a few economic reforms, which many citizens said have put a wide hole in their pockets.
These reforms include exchange rate liberalisation, monetary policy tightening, and efforts to restore fiscal discipline, including the absence of deficit monetisation in recent months and the phasing out of fuel subsidies.
But Fitch things otherwise, as it feels these reforms have recorded positive results, the reason it have the country a positive outlook because of higher external reserves compared with last year.
“The subsequent rise in foreign portfolio investment inflows, greater formalisation of FX activity and official FX inflows ($48 billion in the first half of 2024, compared with $34 billion in the same period last year) have supported the recovery in international reserves,” a part of the statement noted.
As earlier stated, Fitch posited that “The rating is constrained by weak governance indicators relative to peers, high hydrocarbon dependence, weak net foreign-exchange (FX) reserves, high inflation, ongoing security challenges, and structurally low, albeit improving, non-oil revenue.”
“Additionally, continued high fiscal spending, along with exchange rate liberalisation, supply shocks, and the deregulation of gasoline prices (resulting in a near 65 per cent year-on-year rise in September 2024) have accentuated Nigeria’s structurally high inflation,” the firm added.
It submitted that a reduction in external vulnerabilities, confidence that the improvement in the credibility and consistency of Nigeria’s policy mix will reign in inflation, stabilize FX, and sustainable improvement in public finances, potentially arising from an increase in oil revenue could collectively or individually lead to an upgrade in rating.
