Fitch Affirms Nigeria’s Credit Rating as Stable, Expresses Concerns Over $10 Billion Forex Loan

By Milcah Tanimu

Fitch Ratings has affirmed Nigeria’s long-term foreign-currency issuer default outlook as ‘B-‘ with a stable outlook. Despite its strengths in having a large economy, a developed domestic debt market, and substantial oil and gas reserves, Fitch noted weaknesses such as weak governance, low non-oil revenue, high dependence on hydrocarbons, security challenges, high inflation, low foreign exchange reserves, and exchange-rate framework issues. The agency also expressed concerns over a $10 billion forex loan. While Nigeria’s government is supportive of reforms, concerns about the exchange rate framework’s strength and the central bank’s net foreign-exchange position raised doubts, leading to a stable outlook.

Fitch stated that foreign exchange shortages have impacted economic activity and hindered foreign capital. While some reforms have been made, constraints, such as the removal of fuel subsidies, remain. Furthermore, Fitch raised concerns about Nigeria’s weaker net foreign exchange reserve position, noting that the central bank’s gross foreign exchange reserves declined. The lack of detailed information on off-balance-sheet commitments for foreign exchange forwards, futures, and currency swaps adds uncertainty. However, it is expected that most swaps will be rolled over, reflecting the incentives for banks to invest naira in high-yielding sovereign securities and the limited reliance on swaps for foreign currency liquidity.