Fitch Raises Nigeria’s Outlook to Positive, Affirms ‘B’ Rating

Fitch Ratings has revised the outlook on Nigeria’s Long-Term Issuer Default Ratings to Positive from Stable, while affirming the ratings at ‘B’.

The agency announced the decision on Friday, saying the change reflects ongoing reform of the country’s policy framework and its increased confidence that reform momentum will not be disrupted by the elections due in early 2027.

Fitch said monetary and exchange rate reforms have led to greater naira flexibility, disinflation and faster-than-expected accumulation of foreign exchange reserves.

It said gross reserves rose to $54.9 billion on September 25, 2026, from $32 billion in mid-April 2024, helped by more formalised foreign exchange transactions, strong portfolio inflows, and higher export receipts and remittances.

The agency expects reserve cover to reach 6.3 months of current external payments by the end of 2026 and to stay above that of peers in 2027 and 2028. It noted, however, that large net errors and omissions remain a source of uncertainty.

Fitch said reserve quality has also improved, as the Central Bank of Nigeria (CBN) has reduced its foreign exchange liabilities. It said the CBN reported net reserves of $34.8 billion at the end of 2025, compared with about $4 billion at the end of 2023.

The agency forecast that the current account surplus will widen to 6.4 per cent of GDP in 2026 but narrow in 2027, as it expects global oil prices to fall to $70 per barrel from $87 in 2026.

On elections, Fitch said the incumbents are well positioned to win in early 2027 because the ruling party controls most of Nigeria’s 36 states and the opposition is fragmented. It therefore expects broad continuity in economic policy.

It listed significant policy slippage, including fiscal loosening, weaker capital inflows and major social instability, as risks to that view.

Fitch described the CBN’s September policy adjustment as a calibrated easing consistent with improving policy transmission. It said the retention of the 45 per cent cash reserve requirement will continue to absorb naira liquidity and limit credit growth.

The agency forecast average inflation of 15.4 per cent in 2026, less than half the 2024 level but well above the projected ‘B’ median of 5.6 per cent. It expects the CBN to remain cautious because of high food and fuel prices and external risks.

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

It said the ramp-up of the Dangote refinery and the rehabilitation of other facilities have reduced refined product imports and foreign exchange demand, although limited domestic crude supply means Nigeria will still partly rely on imported crude.

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

On public finances, the agency expects the general government deficit to widen by 0.5 percentage points to 3.6 per cent of GDP in 2026. It attributed this to higher social, security, personnel, capital and state spending.

It expects tax reforms to lift non-oil revenue to 7.5 per cent of GDP, or 66 per cent of government revenue, but said implementation constraints will limit the gains. General government revenue will remain below the projected ‘B’ median of 19 per cent of GDP.

Fitch said interest payments will remain heavy. It expects the general government interest-to-revenue ratio to average 27 per cent over 2026 to 2028, against a ‘B’ median of 14 per cent, with the federal government’s ratio staying above 50 per cent.

General government debt is projected to average 32 per cent of GDP over the period, down from 40 per cent in 2024 and well below the ‘B’ median of 56 per cent.

The agency said over 70 per cent of the 2026 borrowing target has been raised, mostly from domestic sources. It said the $5 billion total return swap facility, of which $1.5 billion has been drawn, adds a potential contingent liability and liquidity risk. It added that this is presently limited by the small amount disbursed and by high reserves.

Fitch said almost all banks 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, against minimums of 15 per cent for internationally authorised banks and 10 per cent for others.

The agency said Nigeria’s ratings are constrained by weak governance indicators, heavy dependence on hydrocarbons, high inflation, security challenges and low government revenue relative to peers. It noted that Nigeria ranks in the 20th percentile of the World Bank’s governance indicators.

Fitch said the rating could be upgraded if Nigeria achieves sustained disinflation and continued reform implementation, further strengthening of reserves, and reforms that improve the transparency of public finances, including stronger mobilisation of non-oil revenue.

It said a downgrade could follow a deterioration in the credibility of monetary, fiscal and exchange rate policy, renewed external liquidity stress, or a sustained widening of the fiscal deficit that significantly raises the debt burden.