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BI Africa  >  local  >  markets


FITCH AFFIRMS NIGERIA'S 'B-' RATING, CITES A STABLE OUTLOOK FOR REFORMS

Adekunle Agbetiloye
November 5, 2023 8:00 AM


Fitch Ratings is one of the five global leading credit rating organisations.

 * Fitch Ratings has maintained Nigeria's long-term foreign-currency issuer
   default rating (IDR) at 'B-' with a stable outlook.
 * Fitch foresees a partial recovery in oil production, with expectations of a
   modest increase in 2024-2025. 
 * The agency projects that the near-term sovereign external debt service is
   moderate, at USD4.3 billion in 2024 (10.2% of current external receipts below
   the projected 2024 'B' median of 17.7%).

Fitch Ratings has maintained Nigeria's long-term foreign-currency issuer default
rating at 'B-' with a stable outlook, attributing this to the ongoing reforms
introduced by the administration of President Bola Tinubu.

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According to the agency, the pace of reform progress under President Bola
Tinubu's administration, since assuming office in May 2023, has exceeded its
previous expectations.

In June, the government eliminated fuel subsidies, which accounted for nearly 2%
of GDP in 2022. Also, it streamlined the multiple exchange rate windows,
resulting in the official investor and exporter rate depreciating by almost 40%,
albeit with increased volatility observed towards the end of October.

However, it noted there are still sizeable socio-political challenges to
implementation, including an acceleration in inflation, which could account for
the recent backtracking of some reforms.

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The agency stressed that Foreign exchange (FX) shortages continue to exert
pressure on economic activities and serve as a deterrent to foreign capital. In
October, the Central Bank of Nigeria (CBN) removed the ban on supplying FX for
the importation of 43 items, and there are ongoing efforts to address nearly USD
6.7 billion in outstanding FX forwards.

Read also: African Union seeks to launch its own credit ratings agency in 2024,
following dissatisfaction with foreign ratings

“However, there has been a renewed widening of the gap between the official and
parallel exchange rates since July with a premium of over 30% over the official
rate. Average daily FX turnover at the official exchange rate window has fallen
back to near April 2023 levels (well below pre-pandemic), at USD95 million in
September,” Fitch stated.

The agency pointed out the Central Bank of Nigeria's (CBN) weaker net FX reserve
position, indicating that significant gaps exist, which hinder a dependable
assessment.

It noted that there is a lack of detail on a recent government announcement to
raise USD10 billion of FX, including whether this includes World Bank budget
support loans of USD1.5 billion.

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However, it projects that the near-term sovereign external debt service is
moderate, at USD4.3 billion in 2024 (10.2% of current external receipts below
the projected 2024 'B' median of 17.7%).

Fitch also foresees a partial recovery in oil production, with expectations of a
modest increase in 2024-2025, averaging 1.81 million barrels per day (mbpd),
facilitated by enhanced onshore surveillance.

Budget deficits are expected to narrow with a projected 1.1% pp of GDP rise in
government revenue in 2023-2025, to 8.5% of GDP, helped by increased government
efforts to mobilise non-oil tax revenue (including establishing a presidential
fiscal and tax reform committee),

“But this remains one of the lowest ratios of any Fitch-rated sovereign. This
underpins our forecast for the budget deficit/GDP to narrow to 5.0% and 4.6% in
2024 and 2025,” the agency said.

Fitch forecasts general government debt/GDP to stabilise at 43.9% of GDP in
2024-25, having risen from 35.2% at end-2022 on the depreciation of the naira,
and below the projected 2024 'B' median of 54.8%.

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While macroeconomic challenges are expected to persist, the projection indicates
that the GDP will decelerate to 2.6% in 2023, down from 3.3% in 2022. However,
it is anticipated to rebound with a 3.2% expansion in 2024, driven by the
services sector and increased oil production.

Adekunle Agbetiloye Adekunle is a Senior Reporter at Business Insider Africa
with interest in the African economy, technology, energy transition, and climate
change. He is passionate about telling the story of an evolving Africa.



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