Hot Source•Affirms Nigeria’s stable outlook, ‘B’ rating
•Foresees inflation dropping to 17% in 2027
Kayode Tokede
FitchRatings has stated that the Central Bank of Nigeria (CBN) appears committed to reforms to reduce market distortions and strengthen macroeconomic stability.
It affirmed Nigeria’s long-term foreign-currency Issuer Default Rating (IDR) at ‘B’, with a Stable Outlook.
In a statement posted on its website over the weekend, the global rating agency stated that Nigeria’s ‘B’ rating was supported by its large economy, a relatively developed and liquid domestic debt market, large oil and gas reserves, and an improved monetary and exchange rate policy framework.
It, however, pointed out its latest rating on Nigeria was constrained by weak governance indicators, high hydrocarbon dependence, high inflation, security challenges, and structurally very low, although improving, non-oil revenue.
Fitch, which acknowledged that formalisation of Nigeria’s forex (FX) activity has improved the functioning of the FX market, resulting in higher FX liquidity and relative naira stability.
“The Central Bank of Nigeria (CBN) appears broadly committed to reforms to reduce market distortions and strengthen macroeconomic stability, but data transparency and quality concerns complicate progress toward a more predictable and credible policy framework.
“The reforms and greater exchange rate stability have supported a disinflation trend since April 2025, but inflation remains far above rating peers, at 20 per cent in August 2025.
“We project inflation to fall from an average of 33 percent in 2024, to 21 per cent in 2025 (though the lack of historical CPI data prevents a reliable assessment of inflation) and to 17 per cent in 2027, still far above the projected ‘B’ median of five per cent in 2027.
“With real policy rates turning more positive, the CBN cut the rate by 50 basis points, to 27 per cent, in September, the first cut since November 2020.
“We expect further cuts, although the central bank will move with caution to support the relative stability of the naira and sustain disinflation, while aiming to strengthen policy transmission through the use of open market operations,” it stated.
Fitch noted that Nigeria’s X reserves rose to $42 billion at end-September, and “we forecast a marginal decline to $40 billion at end-2026, equivalent to 5.8 months of current external payments, exceeding the projected ‘B’ median of 4.2 months.”
It added: “We project the current account surplus, which rose sharply to 6.8 per cent of GDP in 2024 (from 1.3per cent of GDP), to narrow in 2025-2026, averaging 4.6 per cent of GDP as modest growth in export receipts, strong remittances and gains from lower oil-related imports (reflecting higher domestic refining capacity) are offset by higher external interest payments and a recovery in non-oil imports (about 70 per cent of imports).
“Fitch forecasts the budget deficit will widen in 2025-2026, averaging 3.1 per cent of GDP due to higher expenditure, driven by higher wages, social and security expenses, debt servicing costs, and expenses ahead of the 2027 elections.
“We expect general government revenue to rise by 2.6pp to 12.4 per cent of GDP in 2027, supported by new tax laws, effective 1 January 2026, that aim to reduce informality and leakages and lift tax collections, but this is far short of the government target for revenues of 16.2 percent of GDP in 2027 (from about 10 per cent in 2024).
“Constraints including administrative capacity gaps and enforcement challenges mean revenue will remain well below the ‘B’ median of 17.8 per cent and among the lowest of Fitch-rated sovereigns.”
Furthermore, it pointed out that structurally, low revenue largely accounts for a high general government interest/revenue ratio, which it expects to peak at 43 per cent in 2025.
“We project a modest decline in 2026-2027 amid increased revenue, but for it to remain high, at 34 per cent (B median 15per cent), with the federal government interest/federal government revenue ratio nearly 50per cent.
“Official disclosure on the composition of the CBN foreign-currency balance sheet remains limited, but the CBN has made substantial progress in unwinding FX swaps with local banks.
“It estimates net reserves at $23 billion at end-2024, up from about $4 billion at end-2023. We estimate roughly 14 per cent of gross reserves are backed by FX swaps with local banks, down from 25 per cent in our November 2024 assessment.
“We expect general government debt/GDP to decline marginally in 2025-2027, to 37 per cent from 39 per cent in 2024, below the ‘B’ median of 51 per cent, as a result of strong nominal GDP growth.
“Nigeria’s public debt has a fairly long average maturity, of 10.9 years, over half of which is local-currency denominated (‘B’ median of 37 per cent, including the 40-year debt security issued to the CBN to settle the Ways and Means facility). Banks’ ample liquidity and strong demand for government securities should support domestic financing capacity.
“Government external debt service is moderate but expected to rise to $5.2 billion in 2025 (with $3.1 billion of amortisation, including a $1.1 billion Eurobond repayment due in November 2025), from $4.6 billion in 2024, and fall to $3.4 billion in 2026, before rising to $5 billion in 2027. We project external debt service/current external receipts to average 15 per cent over 2025-2027, below the ‘B’ median of 19 per cent.
“We forecast that real GDP growth will rise to 4.2 per cent in 2025, from 4.1per cent in 2024. The relative stability in the FX market will support non-oil activity (about 96per cent of GDP), though high inflation and interest rates will constrain momentum.
“We expect the recovery in oil GDP to continue, with oil production (excluding condensates) averaging 1.5 million barrels per day (mbpd) in 2025, from 1.34mbpd in 2024.
“However, it will remain well below the 2019 level of 1.96mbpd, despite renewed energy reform efforts and increased investments by local oil companies. GDP was rebased in July 2025, increasing the nominal size by 43per cent.”
Fitch also expected the banking sector’s impaired loan ratio (end-May 2025: 5.4 per cent) and provisions to rise as banks reclassify some large stage two loans as impaired following the expiry of longstanding systemwide forbearance relating to the classification and provisioning of problem loans (notably oil and gas).
This, combined with the expiry of forbearance relating to single-obligor limit breaches, would exert pressure on capital adequacy ratios, it noted.
“Mitigants, including restructuring of many stage two loans and capital raising ahead of new paid-in capital requirements, will enable most banks to exit forbearance by end-2025.
“A few banks will be allowed to continue operating under forbearance, subject to certain penalties, including the inability to pay dividends,” it added.
