Nigeria’s ratio of interest payments to revenue at above 40% – four times the median for B-rated sovereigns – was a key weakness for its credit rating, Nonyane and Toby Iles, Fitch’s head of Middle East and Africa sovereigns.
Naija247news recalled Fitch Ratings has affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-‘ with a Stable Outlook.
The rating is supported by a large economy, developed debt market, and substantial oil and gas reserves. However, weak governance, low non-oil revenue, high hydrocarbon dependence, security challenges, inflation, low net FX reserves, and exchange-rate weaknesses constrain the rating.
The government’s steps to reduce fuel subsidies and reform the exchange rate framework have been faster than expected, but recent backtracking raises doubts. FX shortages, a weaker net FX reserve position, and challenging exchange rate liberalization persist.
The budget deficit is expected to narrow, but macroeconomic challenges, including high inflation, are projected to persist. Nigeria’s ESG Relevance Score reflects governance issues, with a low World Bank Governance Indicators ranking.
Fitch currently rates Nigeria at B- with a stable outlook.
Across Africa, Iles said interest-to-revenue ratios had more than doubled since 2014 due to increased borrowing coupled with global interest rate hikes that boosted costs.
“We expect that ratio to continue to rise given the pass through of rates,” Iles said of African sovereigns.