Fitch Affirms Nigeria at ‘B’; Outlook Stable

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Fitch Ratings has affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a Stable Outlook.

Nigeria’s ‘B’ rating is supported by the large size of the economy, a low general government
(GG) debt-to-GDP ratio, small foreign-currency (FX) indebtedness of the sovereign and a
comparatively developed financial system with a deep domestic debt market.

The rating is constrained by particularly weak scale revenue, comparatively low governance and development indicators, high dependence on hydrocarbons and continued weak growth
and high inflation, according to Fitch.

Nigeria continues to contend with external liquidity pressures that were magnified by the
2020 pandemic-related shock and resilience to adverse external developments is weak.

Despite gradual and moderate exchange-rate depreciation over the last year, the naira
remains overvalued, Fitch said.

Persistent double-digit inflation under a tightly managed multiple window exchange-rate regime could drive further misalignment of the currency relative to fundamentals.

“We forecast inflation to average 16.0 percent in 2021 and 13.4 percent in 2022, driven by
a number of cost-push factors. Currency overvaluation will hamper a correction of external imbalances,” Fitch said.

Nigeria’s longstanding current account (CA) surplus shifted to a deficit of 4.2 percent of GDP in 2019, driven by a fast rise in imports. Fitch estimates a stable CA deficit of 4.2 percent of GDP in 2020, as import compression from domestic demand contraction and restrictions on FX access offset a slump in hydrocarbon exports and remittances.

The CA deficit will narrow to an average of 1.6 percent of GDP in 2021-2022, much smaller than the forecast average median of 4.3 percent for the ‘B’ rating category, supported by the recovery in oil prices, Fitch forecasts.

Downward pressures on the naira and continued CA deficits could strain international
reserves, amid a subdued outlook for FDI and portfolio inflows.

At their current level, international reserves would cover five months of the forecast current account payments in 2021, better than the forecast ‘B’ median of 4.2 months.

Fitch notes that the Federal Government plans to enhance external concessional borrowing and a possible sovereign Eurobond issuance could support FX reserves.

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