Credit ratings agency, Moody’s, has upgraded Nigeria’s rating by to B3 from Caa1, in its latest report on Friday, due to significant improvements in the country’s external and fiscal positions.
The company noted that the recent overhaul of Nigeria’s foreign exchange management framework has markedly improved the balance of payments and bolstered the Central Bank of Nigeria (CBN) external reserves.
“The upgrade reflects significant improvements in Nigeria’s external and fiscal positions. A more flexible exchange rate has greatly bolstered external reserves. Concurrently, the removal of oil subsidies has alleviated budgetary spending pressures,” it said.
It noted that initially, these policy shifts posed inflationary risks, with, as a result, a potential for policy reversal.
Earlier this month, the World Bank said that Nigeria’s economy achieved its fastest growth in about a decade in 2024, driven by a strong fourth quarter and an improved fiscal position but warned that persistently high inflation remains a challenge.
For Moody’s inflationary risks in Nigeria, driven by policy shifts, have diminished.
“These risks have now diminished, with inflation and domestic borrowing costs showing nascent signs of easing, giving us confidence that the policy changes are becoming more entrenched,” it said in the statement.
The agency also revised Nigeria’s outlook to “stable” from “positive”, as it expects recent progress on external and fiscal fronts to continue, though at a slower pace, if oil prices fall.
“The stable outlook reflects our expectations that external and fiscal improvements will decelerate but will not reverse entirely,” Moody’s said.
Moody’s also said the recent overhaul of Nigeria’s foreign exchange management framework carried out in 2023 has markedly improved the balance of payments and bolstered the CBN’s foreign exchange reserves.
“This reform has also strengthened the non-oil segment of the balance of payments, thereby reducing Nigeria’s vulnerability to declining oil prices. Although under our baseline assumption oil prices will decline by 16 per cent in 2025, this will moderate the positive dynamics but will not reverse it.”
The FX framework eliminated multiple foreign exchange rate windows and established a unified forex market. Currently, the Naira trades around N1,586 per Dollar.
“The forex market reforms have yielded two major benefits: first, the naira is now more accurately priced by the market, correcting its previous overvaluation and facilitating significant external rebalancing. Secondly, there is now a more efficient distribution of forex liquidity within the economy and CBN reserves,” Moody’s added.