Fitch Affirms Nigeria’s Rating at B-, Says Inflation May Remain High

November 6, 2023
Fitch Ratings

By Adedapo Adesanya

Fitch Ratings has affirmed Nigeria’s long-term foreign-currency issuer default outlook at ‘B-‘ with a stable outlook, listing the country’s major strengths as a large economy, developed and liquid domestic debt market, and large oil and gas reserves.

In its report released over the weekend, Fitch stated that the rating was constrained by weak governance, structurally low non-oil revenue, high hydrocarbon dependence, security challenges, high inflation, low net foreign exchange (FX) reserves, and ongoing weakness in the exchange-rate framework.

It acknowledged that the government had taken important steps to reduce fuel subsidies and reform the exchange rate framework much more quickly than it anticipated and had ambitions to substantially raise revenue.

“However, there has recently been some backtracking on reforms, notably a lower degree of price discovery in the FX market than in late June, raising doubt about the strength of this positive momentum,” Fitch said.

“In addition, new data on the Central Bank of Nigeria (CBN) suggests its net foreign-exchange position is substantially weaker than we previously understood. These factors are reflected in the stable outlook,” the rating agency stated.

While there has been faster reform progress, constraints remain, Fitch noted, highlighting President Bola Tinubu’s government’s removal of fuel subsidies, which cost nearly two per cent of Gross Domestic Product (GDP) in 2022.

“It also unified the multiple exchange rate windows, and the official investors and exporter rate was allowed to depreciate by close to 40 per cent, with renewed volatility around end-October,” it stated.

Fitch also explained that it viewed the cabinet, particularly the Minister of Finance, Mr Wale Edun, and the new CBN governor, Mr Yemi Cardoso, as supportive of reforms.

However, it said there were still sizeable socio-political challenges to implementation, including an acceleration in inflation, which could account for the recent backtracking of some reforms.

On the challenging exchange rate liberalisation, the agency noted that FX shortages continued to weigh on economic activity and further FX liberalisation and deter foreign capital.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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