May 6, 2024/CSL Research

Fitch Ratings has revised the outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at ‘B-‘. According to the Fitch report, the positive outlook partly reflects reforms over the last year to support the restoration of macroeconomic stability and enhance policy coherence and credibility.

Fitch had earlier expressed concerns that weak governance, security challenges, high inflation, structurally low non-oil revenue, high hydrocarbon dependence, and weakness in the exchange-rate framework would constrain economic growth in Nigeria.

The following key ratings drivers were allocated high weights; significant reforms, distortions reduction stemming from previous CBN unconventional monetary and exchange rate policies, exchange rate liberalisation as seen in last year’s unification of the multiple exchange rate windows, significant rise in FPI inflows, and further monetary policy tightening. Ratings fundamentals supported by Nigeria’s large economy (developed & liquid domestic debt market, large oil and gas reserves), moderate gross FX reserves, banking sector resilience and extremely high interest expenditure were given medium weights.

In line with our outlook, Fitch noted that challenges facing oil production in Nigeria remain. Though we expect a slight increase in oil production in 2024, we expect production to remain significantly below pre-covid levels. We project the oil sector to grow at 6.90% y/y, a significant turnaround from the 2.22% contraction in 2023. This growth is based on the anticipated improvement in oil production, set to increase to 1.56 million barrels per day (mbpd) in 2024 from 1.46 mbpd in 2023.