Fitch Sees Nigeria’s Government Revenue Below 19% of GDP Benchmark

By Adedapo Adesanya

Fitch Ratings expects Nigeria’s government revenue to remain below the 19 per cent of gross domestic product (GDP) median projected for countries with a ‘B’ credit rating, despite anticipated gains from tax reforms.

In its most recent outlook, the ratings agency said implementation constraints would limit the impact of the reforms introduced by President Bola Tinubu, which are expected to raise non-oil revenue to 7.5 per cent of GDP, representing 66 per cent of total government revenue.

Fitch also projected Nigeria’s general government deficit to widen by 0.5 percentage points to 3.6 per cent of GDP in 2026, driven by higher spending on social services, security, personnel, capital projects and state governments.

The agency expects the government’s interest payments to remain elevated, with the general government interest-to-revenue ratio averaging 27 per cent between 2026 and 2028, compared with the ‘B’ rating median of 14 per cent.

For the federal government, the interest-to-revenue ratio is expected to remain above 50 per cent, highlighting the pressure debt servicing continues to exert on public finances.

However, Fitch projected general government debt to average 32 per cent of GDP over the period, down from 40 per cent in 2024 and below the ‘B’ rating median of 56 per cent.

The agency said the government had raised more than 70 per cent of its 2026 borrowing target, mainly through domestic sources.

It noted that Nigeria’s $5 billion total return swap facility, of which $1.5 billion had been drawn, presented a potential contingent liability and liquidity risk. However, Fitch said the risk remained limited by the relatively small amount disbursed and the country’s high external reserves.

On monetary policy, Fitch described the Central Bank of Nigeria’s (CBN) September adjustment of the interest rate to 23 per cent from 26.50 per cent as calibrated easing, adding that the retention of the 45 per cent cash reserve requirement would continue to absorb naira liquidity and constrain credit growth.

The agency forecast average inflation of 15.4 per cent in 2026, less than half the 2024 level but significantly above the projected ‘B’ rating median of 5.6 per cent. It expects the central bank to maintain a cautious stance amid elevated food and fuel prices and external risks.

Fitch said Nigeria’s crude oil production, excluding condensates, rose 10 per cent quarter-on-quarter in the second quarter of 2026. Output has met the Organisation of the Petroleum Exporting Countries’ (OPEC) target of 1.5 million barrels per day since May, averaging 1.52 million barrels per day.

It added that the ramp-up of the Dangote refinery and the rehabilitation of other facilities had reduced refined petroleum product imports and foreign exchange demand. However, limited domestic crude supply means Nigeria would continue to rely partly on imported crude.

The agency forecast real GDP growth of 4.3 per cent in 2026, up from 4 per cent in 2025, and expects growth to remain above 4 per cent in 2027 and 2028, driven by non-oil activity.

On the banking sector, Fitch said almost all Nigerian lenders had met the higher capital requirements introduced at the end of the first quarter of 2026 by raising fresh core capital. It estimated that many banks now have capital adequacy ratios above 20 per cent, compared with minimum requirements of 15 per cent for internationally authorised banks and 10 per cent for other lenders.

Despite these developments, Fitch said Nigeria’s credit ratings remained constrained by weak governance indicators, heavy dependence on hydrocarbons, high inflation, security challenges and low government revenue relative to peer countries.

The agency noted that Nigeria ranked in the 20th percentile of the World Bank’s governance indicators.

Finance Minister Taiwo Oyedele acknowledged the challenges identified by Fitch, including inflation that remains high relative to peer countries, low government revenue relative to the size of the economy and elevated interest costs.

He said the government’s reform programme was designed to address these constraints through sustained economic reforms, improved revenue mobilisation, more efficient public spending and stronger fiscal governance.

Fitch said a sustained decline in inflation, continued reform implementation, stronger external reserves and greater transparency in public finances could support an upgrade of Nigeria’s rating.

Conversely, it warned that weaker credibility in monetary, fiscal and exchange rate policies, renewed external liquidity pressures or a sustained widening of the fiscal deficit that significantly increases the debt burden could trigger a downgrade.

Mr Oyedele said the government would continue to prioritise a transparent, market-reflective foreign exchange regime, implementation of the new tax laws, improved budget execution and debt management, and structural reforms to support non-oil growth and economic diversification.

He added that the administration aimed to translate macroeconomic stability into broader prosperity through improved food security, job creation, human development and support for small businesses.