Moody’s Ratings, a US-based rating agency, has revised Nigeria’s sovereign outlook to positive from stable, citing improvements in the country’s external position and ‘stronger-than-expected’ economic growth.
The rating agency, however, affirmed Nigeria’s long-term
foreign and local currency issuer ratings at B3.
In a statement on Friday, Moody’s said the positive outlook
reflects improvements which, if sustained, could strengthen Nigeria’s capacity
to absorb external shocks, improve economic resilience and gradually increase
government revenue.
The agency cited “Nigeria’s sizeable current account
surpluses, significant accumulation of foreign exchange reserves, improved
functioning of the foreign exchange market and more effective, although still
weak, monetary policy transmission”.
It also said higher oil production should support economic
growth in 2026 and 2027.
“Taken together, the large current account surpluses and the
reserve accumulation, if maintained, would materially reduce Nigeria’s external
vulnerability,” Moody’s said.
The rating agency projects the surplus to widen to about 6.1
percent of GDP in 2026, before narrowing to 4.1 percent in 2027.
Moody’s said gross foreign exchange (FX) reserves, excluding
gold, special drawing Rights and Nigeria’s position at the International
Monetary Fund (IMF), rose to about $44.4 billion in June 2026, from $31.2
billion a year earlier.
The reserves now cover about six months of imports,
according to the agency.
On economic growth, Moody’s said real GDP growth reached 4
percent in 2025, compared with its previous assessment that medium-term growth
would remain closer to 3 percent.
“Growth has been driven primarily by robust non-oil
activity, reflecting improved foreign exchange availability and a reduction in
distortions in the foreign exchange market,” it said.
“We expect growth to remain around 4 percent over the next
few years, supported by continued strength in the non-oil economy and gradually
higher oil production.”
Moody’s also said macroeconomic stabilisation had
strengthened Nigeria’s operating environment, with headline inflation declining
to 15.4 percent in July 2026 from 25.3 percent a year earlier.
The decline, according to the firm, reflected the fading
effects of sharp price adjustments following exchange-rate liberalisation and
fuel subsidy removal, as well as the Central Bank of Nigeria’s restrictive
monetary policy stance.
The agency said the CBN’s transition towards an
inflation-targeting approach is “enhancing monetary policy transmission” and
pointed to “gradual improvements in the effectiveness of Nigeria’s monetary
policy framework.”
“The naira has appreciated against the US dollar during
2025-26, while declining inflation has reinforced macroeconomic stability,”
Moody’s said.
However, Moody’s said Nigeria’s fiscal position remains a
major weakness.
“The affirmation of Nigeria’s B3 ratings reflects the
country’s persistently weak fiscal strength, primarily driven by exceptionally
low government revenue despite some recent progress in tax administration and
reform,” it said.
“General government revenue amounted to around 10% of GDP in
2025, among the lowest levels globally and well below those of rating peers.”
Moody’s said revenue mobilisation remains constrained by “a
large informal economy, extensive exemptions, weak compliance, leakages in the
collection and remittance of oil-related revenue, and limited administrative
capacity across different levels of government.”
‘TAX REFORMS STRENGTHENED REVENUE MOBILISATION FRAMEWORK,
BUT IMPACT IS SUBJECT TO RISKS’
The agency said the tax reforms enacted in 2025 strengthened
the framework for revenue mobilisation over time, but their fiscal impact would
materialise only gradually and remains subject to implementation risks.
“Weak revenue generation continues to weigh heavily on debt
affordability and fiscal flexibility,” the agency said.
“Although the government’s debt stock remains moderate
relative to GDP, exceptionally low revenue and high domestic borrowing costs
result in a very large interest burden relative to government income.”
Moody’s expects debt affordability to remain weak over the
coming years, with interest payments continuing to absorb a substantial share
of revenue “absent significantly stronger revenue mobilisation.”
The organisation also identified weaknesses in public
financial management, including shortcomings in fiscal reporting, expenditure
control and budget execution, as continuing credit constraints.
According to Moody’s, Nigeria could receive an upgrade if
the recent improvements in its external position are sustained, producing a
durable strengthening of external resilience and reducing vulnerability to
external shocks.
The company said the rating could also be upgraded if
revenue measures already implemented, or additional measures, provide greater
confidence that government revenue will rise sustainably and improve debt
affordability while preserving solid external buffers.
“Such developments would most likely occur amid broad
governance and institutional reforms that address longstanding institutional
weaknesses,” Moody’s said.
Moody’s noted that the outlook could also return to stable,
with a possible downgrade, if government revenue weakens materially, resulting
in “substantially weaker debt affordability metrics” than currently
anticipated.
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