Fitch Ratings has affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a Stable Outlook, citing improved foreign exchange liquidity and ongoing monetary and fiscal reforms, while warning that weak governance and high inflation remain key credit challenges.
In its latest review released on Friday, the global ratings agency said Nigeria’s rating is supported by its large economy, a liquid domestic debt market, and substantial oil and gas reserves.
However, it noted that persistent inflation, revenue weakness, and security issues continue to weigh on the country’s credit profile.
“Nigeria’s ‘B’ rating is supported by its large economy, relatively developed and liquid domestic debt market, and improved monetary and exchange rate policy framework,” Fitch stated.
“It is constrained by weak governance indicators, high hydrocarbon dependence, high inflation, security challenges, and structurally low non-oil revenue.”
Improved FX liquidity and monetary stability
Fitch observed that recent reforms by the Central Bank of Nigeria (CBN) have strengthened foreign exchange market operations, resulting in better liquidity and relative naira stability.
However, the agency cautioned that data transparency and quality concerns continue to pose risks to policy credibility.
The report also noted that foreign reserves rose to $42 billion as of end-September 2025, exceeding the median for similarly rated ‘B’ economies. Fitch projected a slight decline to $40 billion by end-2026, equivalent to 5.8 months of import cover.
Fitch said Nigeria’s current account surplus climbed to 6.8% of GDP in 2024 from 1.3% the previous year, driven by robust remittances and reduced oil import costs due to higher domestic refining capacity.
Inflation easing but still elevated
- According to Fitch, Nigeria’s inflation rate remains one of the highest among ‘B’-rated peers, despite signs of moderation. Inflation stood at 20% in August 2025, down from an average of 33% in 2024, and is projected to fall to 17% by 2027.
- The report said the CBN’s decision to cut its policy rate by 50 basis points to 27% in September, the first cut since 2020, reflects efforts to balance monetary easing with naira stability and disinflation goals.
“We expect further rate cuts, although the CBN will move with caution to sustain relative currency stability and strengthen policy transmission,” Fitch said.
Fiscal and debt outlook remain pressured
Fitch projected that Nigeria’s budget deficit will widen to an average of 3.1% of GDP between 2025 and 2026, driven by rising wages, security spending, and election-related costs ahead of 2027.
While the government’s new tax laws—effective January 2026—are expected to raise revenue to 12.4% of GDP by 2027, Fitch said this remains well below the government’s target of 16.2% and far short of the ‘B’ median of 17.8%.
Nigeria’s general government debt is forecast to decline slightly to 37% of GDP by 2027 from 39% in 2024, helped by nominal GDP growth and domestic financing capacity.
However, interest payments are projected to consume up to 43% of government revenue in 2025, easing modestly thereafter.
Moderate growth, oil recovery expected
Fitch expects real GDP growth to increase slightly to 4.2% in 2025, supported by exchange rate stability and higher oil output. Oil production (excluding condensates) is forecast to average 1.5 million barrels per day in 2025, up from 1.34 million bpd in 2024, though still below pre-pandemic levels.
“The relative stability in the FX market will support non-oil activity, but high inflation and interest rates will constrain momentum,” the agency noted.
Fitch also said Nigeria’s banking sector is expected to adjust to new capital requirements by end-2025 as the CBN phases out longstanding regulatory forbearance on loan classifications.
Governance and outlook
- Fitch maintained Nigeria’s Environmental, Social and Governance (ESG) Relevance Score at ‘5’ for political stability, institutional quality, and control of corruption, citing persistent institutional weaknesses and uneven rule of law enforcement.
- The rating agency said Nigeria’s outlook could improve if sustained reforms lead to lower inflation, stronger revenue mobilisation, and higher growth, while policy reversals, fiscal slippage, or renewed FX stress could trigger a downgrade.
“Sustained progress in disinflation, stronger medium-term growth, and improved governance could support an upgrade,” Fitch said.
“Conversely, renewed external liquidity stress or weakening fiscal discipline could lead to a downgrade.”
What you should know
- In August, Fitch Ratings revealed that while most banks are expected to exit the regulatory forbearance regime by December 2025, a select few will continue operating under forbearance beyond the period.
- Though no specific bank was mentioned, the credit rating agency added that this will be subject to stringent penalties, including a prohibition on dividend payments.
- This development comes amid broader efforts by the Central Bank of Nigeria (CBN) to reinforce financial stability and ensure banks enter 2026 with stronger capital buffers and cleaner balance sheets.