Fitch Ratings has affirmed Nigeria’s long-term foreign currency loan default outlook at B-, citing President Tinubu’s recent policies as responsible for the stable outlook.

It also raised concerns about the proposed $10 billion foreign exchange loan, which the government plans to use to offset foreign exchange arrears and inject liquidity into the system.

This is evident from the latest Rating Outlook Commentary on the Nigerian Economy. The global ratings agency noted that reforms such as the removal of fuel subsidies and the new exchange rate framework were responsible for the stable outlook.

However, there were signs of a backtrack on reforms such as: “a lower level of price discovery in the foreign exchange market than at the end of June” and the recent revelation from the country’s top bank suggesting that foreign reserves are significantly lower than publicly acknowledged.

Strengths and weaknesses that affect the current rating

On the strengths and weaknesses of the Nigerian economy, the agency noted: “Nigeria’s ‘B-‘ rating is supported by a large economy, a developed and liquid domestic debt market, and large oil and gas reserves.”

The rating is constrained by weak governance, structurally very low non-oil revenues, high dependence on hydrocarbons, security issues, high inflation, low net foreign exchange reserves and persistent weakness in the exchange rate framework.”

Fitch expressed concerns about the government’s recent announcement of securing $10 billion in foreign exchange, highlighting the lack of specific information, such as whether this amount includes World Bank budget support loans totaling $1.5 billion.

It says:

  • “We forecast a broadly flat current account surplus averaging 0.5% of GDP over 2023-2024. Details are missing on a recent government announcement to raise $10 billion in foreign exchange, including whether this includes $1.5 billion in World Bank budget support loans.
  • Following the sharp devaluation this year, Fitch expects exchange rate adjustments to occur gradually in subsequent years.”

The agency also noted that the country’s public debt, excluding loans from the Central Bank of Nigeria, has a relatively long average maturity of 9.7 years.

Challenges of the Nigerian economy and growth spurts

In addition, the agency also said that foreign exchange shortages are hampering economic activities in the country and hampering the flow of foreign capital, and that the CBN’s net foreign exchange position is lower than expected, according to its financial report released in August.

Additionally, the agency stated that Nigeria’s growth in 2024 will be driven by an increase in crude oil production, reduction in fiscal deficit thereby freeing up resources for capital expenditure, non-oil revenue growth, etc. She, however, noted Nigeria’s macroeconomic challenges included; high inflation, which is forecast to fall to 21.1% by 2024, and a high interest rate.

ESG score

On ESG, Fitch rated Nigeria 5, citing the World Bank, which noted that Nigeria has weak institutional governance capacity.

It says:

  • “ESG – Governance: Nigeria has an ESG relevance score of ‘5’ for both political stability and rights as well as the rule of law, institutional and regulatory quality and anti-corruption.
  • These results reflect the high weight given to the World Bank Governance Indicators (WBGI) in our proprietary Sovereign Rating Model (SRM).
  • “Nigeria has a low WBGI ranking at the 17th percentile, reflecting weak institutional capacity, uneven application of the rule of law and high levels of corruption.”

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