The credit rating outlook of Nigeria was reviewed upward to positive from stable by Fitch ratings, six months after it said that reform progress since President Bola Tinubu came to power in May of last year faster than was anticipated.
The reforms such as that in the foreign exchange market, monetary policy, and oil and gas industry were applauded by the global ratings agency, according to Bloomberg.
It noted that the upward review to positive was a result of various initiatives introduced by the federal government to enhance economic stability and improve credit ratings.
It said “Fitch Ratings has revised the outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable, and affirmed the IDR at ‘B-”
“The Positive Outlook partly reflects reforms over the last year to support the restoration of macroeconomic stability and enhance policy coherence and credibility.
“The reform has reduced distortions stemming from previous unconventional monetary and exchange rate policies, resulting in the return of sizeable inflows to the official foreign exchange (FX) market. Nevertheless, we see significant short-term challenges, notably, inflation is high and the FX market has yet to stabilise, and the durability of the commitment to reform is to be tested.”
In addition, the report lauded the Central Bank of Nigeria’s approach to eliminating distortions in the foreign exchange market, attracting foreign inflow into the market, and monetary policy tightening.
However, the Agency has expressed concerns about continued volatility in the international currency market, an increase in inflation, and the vague nature as regards the real size of the country’s external reserves.
The agency also expressed concern about the low level of oil production, the need to improve nonoil revenues, and high-interest payments due to the depreciation of the euro and the increase in borrowing rates.
Recall, following the reforms undertaken by President Tinubu on the assumption of office, Fitch Ratings last year raised Nigeria’s credit outlook to a moderate. The Outlook then raised concerns about the proposed 10 billion dollar loan to offset foreign exchange losses.
Since then, however, several reforms have been undertaken by the federal government. During this period, the Central Bank of Nigeria cleared the foreign currency debt backlog, increased the monetary policy rate by 600 basis points, and raised the capital ratio of the various tiers of banks in the country.
