Fitch Ratings on November 3, 2023, affirmed Nigeria's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B-' with a Stable Outlook. The rating agency cited a stable outlook for reforms to improve the country's fiscal and external positions, as well as progress in addressing structural constraints.
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 Nigerian government eliminated fuel subsidies, which constituted 2% of Nigeria’s GDP in 2022. This removal, while contested by many, especially the middle-and-low-income households, was necessary to avoid regressive effects, market distortion, deadweight loss, and rent-seeking. Moreover, the Nigerian government streamlined the multiple exchange rate windows, resulting in the official investor and exporter rate depreciated by almost 40%, albeit with increased volatility observed towards the end of October.
Fitch noted that Nigeria's government has taken steps to improve its fiscal position, including increasing non-oil revenue and reducing spending. However, the agency also highlighted that the country's debt burden is high and its economy is vulnerable to external shocks.
On the external front, Fitch said that Nigeria's current account deficit has narrowed, but it remains elevated. The agency also noted that the country's foreign reserves are low relative to its external debt.
Fitch said that Nigeria's creditworthiness is balanced by its strong economic growth potential, large and diversified economy, and improving governance standards. However, the agency also highlighted the country's high debt burden, weak external position, and vulnerability to external shocks. Nigeria's creditworthiness is generally considered to be moderate.
Nigeria's creditworthiness is likely to improve in the coming years if the government continues to implement reforms to improve its fiscal and external positions, and progress in addressing structural constraints. However, the country's creditworthiness could deteriorate if there is a material deterioration in Nigeria's fiscal or external positions, or if there is a significant setback in the implementation of reforms.
The very first step for Nigeria to improve its creditworthiness would be to dramatically reduce its debt burden. Nigeria's debt burden is relatively high, so reducing it would be a positive step towards improving the country's creditworthiness. This can be done by increasing government revenue, reducing government spending, and/or negotiating favorable debt restructuring terms.
Furthermore, as was aforementioned, Nigeria's external position is also relatively weak, with a high current account deficit and low foreign reserves. Improving the external position would involve reducing the current account deficit and increasing foreign reserves. This can be done by promoting exports, discouraging imports, and attracting foreign investment.
The Nigerian government currently spends a large amount of money on subsidies, which are often inefficient and wasteful. Reducing these subsidies would help to reduce the government’s budget deficit and free up resources for other priorities, such as infrastructure investment.
Lastly, the Nigerian government could promote exports by providing tax breaks and other incentives to exporters. The government could also invest in infrastructure that would help to reduce the cost of exporting goods from Nigeria.
Improving Nigeria's creditworthiness will take time and effort, but it is important to the country's long-term economic development. By implementing the policies outlined above, the Nigerian government can make progress towards improving its creditworthiness and attracting more foreign investment.