Nigeria’s credit rating upgraded to B3 by Moody’s Ratings

Investing.com -- Moody’s Ratings has upgraded Nigeria’s long-term foreign and local currency issuer ratings from Caa1 to B3 on May 30, 2025, and has revised the outlook from positive to stable. The ratings agency has also improved Nigeria’s foreign currency senior unsecured debt ratings to B3 and the foreign currency senior unsecured MTN program rating to (P)B3 from Caa1 and (P)Caa1 respectively.

The upgrade is a reflection of significant improvements in Nigeria’s external and fiscal positions. The country’s more flexible exchange rate has significantly boosted external reserves, while the removal of oil subsidies has relieved budgetary spending pressures. Inflation and domestic borrowing costs are showing early signs of easing, indicating that these policy changes are becoming more established.

Tax reforms have begun to yield results. Despite vulnerabilities related to oil prices and the exchange rate, Nigeria’s more robust buffers support a B3 rating. The stable outlook indicates that Moody’s expects Nigeria’s recent progress on external and fiscal fronts to continue, albeit at a slower pace if oil prices fall.

The Central Bank of Nigeria (CBN) might face difficulties in maintaining a flexible exchange rate if oil prices decline further, which could weaken the naira and increase the government’s debt burden. Persistent high inflation could impede interest rate normalization. On the other hand, a track record of flexible exchange rate policy and successful revenue reforms could improve business sentiment, lower interest rates, and drive economic growth beyond baseline expectations.

Nigeria’s local currency (LC) and foreign currency (FC) country ceilings have been raised to Ba3 and B2, respectively, from previously B2 and Caa1. The LC country ceiling at Ba3 is three notches above the sovereign issuer rating, incorporating some degree of unpredictability in government actions and political risk. The FC country ceiling at B2 remains two notches below the LC country ceiling, reflecting persistent transfer and convertibility risks.

The recent overhaul of Nigeria’s foreign exchange management framework has significantly improved the balance of payments and bolstered the CBN’s foreign exchange reserves. These reforms have also strengthened the non-oil segment of the balance of payments, reducing Nigeria’s vulnerability to declining oil prices.

Government efforts to reduce fiscal deficits are yielding positive outcomes, primarily driven by the elimination of the oil subsidy in mid-2023 and improved tax collection efforts. The primary balance shifted to a surplus of 0.8% of GDP in 2024, compared to a deficit of 2.6% in 2022.

Inflation in Nigeria has been slow to temper, but signs of easing have now emerged. The CBN’s policy has been tight, with easing expected to be very gradual. A cumulative 875 basis point increase in 2024 raised the policy rate to 27.5%, resulting in a positive real policy rate for the first time since 2020. The CBN has tightened the money supply through higher banks’ cash reserve requirements.

The stable outlook reflects the expectation that external and fiscal improvements will decelerate but will not reverse entirely. A further decline in oil prices could challenge the CBN’s commitment to its current foreign exchange regime. Persistent inflation also poses a downside risk, potentially halting the gradual normalization of interest rates.

The rating may see positive pressure if the current credit improvements persisted and became more entrenched. Conversely, the rating could face negative pressure if credit improvements reverse, potentially due to external shocks like further oil price declines or policy shifts resulting from political changes or social demands.

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