Fitch revises Nigeria’s economic outlook from stable to positive
Global ratings agency Fitch revised Nigeria’s outlook on Friday from stable to positive, citing the country’s economic reforms under President Bola Tinubu.
These reforms were aimed at supporting the restoration of macroeconomic stability and enhancing policy coherence and credibility. Adjustments in exchange rate and monetary policy frameworks, reduction of fuel subsidies, improved coordination between the Ministry of Finance and the Central Bank of Nigeria (CBN), scaling back of CBN financing for the government, and measures to raise government revenue and oil production all contributed to this positive outlook.
Since taking office about a year ago, Tinubu has embarked on sweeping reforms, including slashing costly petrol and electricity subsidies and devaluing the naira currency twice within a year to narrow the gap between the official and parallel market exchange rates.
The reforms have successfully reduced distortions caused by previous unconventional monetary and exchange rate policies. This reduction led to a significant return of inflows to the official foreign exchange market. The unification of multiple exchange rate windows, collapse of large differentials between official and parallel market rates, clearance of backlog unpaid FX forwards, and resumption of weekly sales to bureaux de changes all played a role in stabilizing the FX market.
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Moody’s and S&P also revised their outlook on Nigeria last year, citing the potential impact of reforms.
Nigeria has grappled with anemic growth, dollar shortages, a mounting debt burden and widespread insecurity.
However, Fitch noted significant short-term challenges such as persistently high inflation and the currency market that has yet to stabilize.
The Nigerian central bank has raised its monetary policy rate by 600 basis points since the start of the year to curb galloping inflation and asked banks to raise their minimum capital to help enhance resilience and strengthen the country’s financial system.
The agency maintained the African country’s rating at “B-” within the junk territory.
Fitch anticipates further improvements in Nigeria’s economic indicators, including inflation rates, budget deficit narrowing through improved revenue mobilization, reduced reliance on CBN overdrafts, increased oil refining capacity, higher crude oil production levels, and enhanced domestic financing capacity.