Fitch Highlights Economic Gains Under Tinubu, Notes $2.2 Billion Eurobond Boosts Nigeria’s Credit Prospects

Fitch Ratings disclosed that the federal government’s pursuit of orthodox economic policies since the inception of the President Bola Tinubu administration in 2023, which anchored the recent $2.2 billion Eurobond issuance, had improved the prospects of the country’s credit profile.

In a report on the state of the nation’s economy, the ratings agency highlighted the changes that the Central Bank of Nigeria (CBN) had introduced, including the simplification of the exchange rate regime and tightening of monetary policy through higher interest rates, stressing that they have further reduced distortions in the economy and improved policy credibility.

According to Fitch, if the electronic matching platform for all foreign exchange (FX) transactions, launched on December 2, is successful, it will mark another step towards a more transparent and efficient FX regime in Nigeria.

It pointed out that external buffers had benefitted from the exchange-rate reforms and associated increase in formalised FX transactions, with gross official reserves rising to $40.2 billion in November, equivalent to around six months of current external payments, from $32.2 billion in April and well above the median for sovereigns rated in the ‘B’ category of 3.7 months.

Besides, the organisation stated that gross reserves had benefited from Nigeria’s higher current-account surplus, a $917 million foreign currency-denominated local bond issued in August, and a $750 million disbursement from the World Bank on November 20.

These developments, it stressed, will be further buoyed by the Eurobond issue that was successfully completed on December 3, involving a $700 million 6.5-year note and a $1.5 billion 10-year note.

Nevertheless, Fitch argued that a number of challenges remained, including ad hoc or insufficiently communicated policy implementation that had constrained investor confidence.

It stated that exchange rate policy remained hampered by a lack of transparency in several areas, including the level of net reserves, maintaining that a divergence between the official and parallel market rates has re-emerged in recent months, pointing to slower-than-expected progress on reforms and lingering FX strains.

The report said, “Fiscal policy is another source of uncertainty for 2025. The government’s recent 2025-2027 Medium-Term Expenditure Framework (MTEF) set out plans to narrow the budget deficit more sharply than we had expected.

“However, the MTEF’s assumptions about oil prices and production ($75 per barrel and 2.06 million barrels per day, including condensates) are more optimistic than Fitch’s ($70/bbl and 1.77 million bpd respectively).

“The authorities have increased efforts to raise non-oil revenues even as oil-related revenues appear likely to fall short, but there is already a risk that they could face political challenges implementing their plans to raise the Value Added Tax (VAT) rate to 10 per cent in 2025 from 7.5 per cent currently.

“Fitch views raising fiscal revenues – and particularly less volatile non-oil revenues – as an important element of the government’s reform agenda and a key consideration for the sovereign’s credit profile, as Nigeria’s revenue/ Gross Domestic Product (GDP) is extremely low.”

Fitch added, “Even with the VAT rate increase, we expect Nigeria’s general government revenue/GDP to average around 10.3 per cent in 2024-2025, compared with a median of 19 per cent for sovereigns in the ‘B’ category.

“Reducing the deficit in line with the MTEF would provide further credibility for the government’s reform agenda, but if the deficit target is missed, it may increase the pressure for further naira depreciation, as well as putting upward pressure on prices and interest rates.”

The ratings agency said a deficit significantly larger than what it projected in its November 1 assessment, when it affirmed Nigeria’s rating at ‘B-’ with a Positive Outlook, could complicate the task of establishing macroeconomic stability and potentially damage policy credibility.

It stated, “The reform-related improvements in Nigeria’s credit profile are captured in the Positive Outlook on the sovereign rating. If positive trends in external credit metrics are sustained, or our confidence in the durability of the broader reform agenda strengthens, upward pressure on the rating will increase.”

Separately, Fitch predicted that significant geopolitical developments, such as military escalation in the Middle East or changes in international sanctions, could disrupt supply chains in the global oil and gas sector, and increase its volatility.

The organisation said, “We expect global oil demand in 2025 to grow in line with 2024, but more slowly than in 2022-2023. Fitch expects oil prices to decrease to $70/bbl in 2025 from an average of $80/bbl in 2024, due to moderating demand growth and higher production from non-OPEC+ countries, leading to oversupply.”

It added, “Geopolitical tensions, particularly in the main producing regions, such as the Middle East, will continue to influence prices. While these tensions pose risks, they are mitigated by OPEC+’s ability to manage supply. The group has delayed oil production increases until April 2025 and prolonged the complete reversal of cuts by a year, until end-2026.”

Emmanuel Addeh

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