#Fitch Affirms President Bola Tinubu Government At B- Rating, Says Outlook Stable On Reforms—Fitch Ratings has maintained Nigeria’s long-term foreign-currency issuer default rating at ‘B-‘ with a stable outlook, attributing this to the ongoing reforms introduced by the administration of President Bola Tinubu.
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 government eliminated fuel subsidies, which accounted for nearly 2% of GDP in 2022. Also, it streamlined the multiple exchange rate windows, resulting in the official investor and exporter rate depreciating by almost 40%, albeit with increased volatility observed towards the end of October.
However, it noted there are still sizeable socio-political challenges to implementation, including an acceleration in inflation, which could account for the recent backtracking of some reforms.
The agency stressed that Foreign exchange (FX) shortages continue to exert pressure on economic activities and serve as a deterrent to foreign capital. In October, the Central Bank of Nigeria (CBN) removed the ban on supplying FX for the importation of 43 items, and there are ongoing efforts to address nearly USD 6.7 billion in outstanding FX forwards.
“However, there has been a renewed widening of the gap between the official and parallel exchange rates since July with a premium of over 30% over the official rate. Average daily FX turnover at the official exchange rate window has fallen back to near April 2023 levels (well below pre-pandemic), at USD95 million in September,” Fitch stated.
The agency pointed out the Central Bank of Nigeria’s (CBN) weaker net FX reserve position, indicating that significant gaps exist, which hinder a dependable assessment.
It noted that there is a lack of detail on a recent government announcement to raise USD10 billion of FX, including whether this includes World Bank budget support loans of USD1.5 billion.
However, it projects that the near-term sovereign external debt service is moderate, at USD4.3 billion in 2024 (10.2% of current external receipts below the projected 2024 ‘B’ median of 17.7%).
Fitch also foresees a partial recovery in oil production, with expectations of a modest increase in 2024-2025, averaging 1.81 million barrels per day (mbpd), facilitated by enhanced onshore surveillance.
Budget deficits are expected to narrow with a projected 1.1% pp of GDP rise in government revenue in 2023-2025, to 8.5% of GDP, helped by increased government efforts to mobilise non-oil tax revenue (including establishing a presidential fiscal and tax reform committee),
“But this remains one of the lowest ratios of any Fitch-rated sovereign. This underpins our forecast for the budget deficit/GDP to narrow to 5.0% and 4.6% in 2024 and 2025,” the agency said.
Fitch forecasts general government debt/GDP to stabilise at 43.9% of GDP in 2024-25, having risen from 35.2% at end-2022 on the depreciation of the naira, and below the projected 2024 ‘B’ median of 54.8%.
While macroeconomic challenges are expected to persist, the projection indicates that the GDP will decelerate to 2.6% in 2023, down from 3.3% in 2022. However, it is anticipated to rebound with a 3.2% expansion in 2024, driven by the services sector and increased oil production.
