Nigeria Builds Case for Credit Upgrade as Growth, Dollar Buffers Strengthen

Nigeria is building a stronger case for a sovereign credit rating upgrade as faster economic growth, rising foreign exchange reserves and an improving external position strengthen the country’s ability to withstand economic shocks.

Moody’s Ratings revised Nigeria’s sovereign outlook to positive from stable while retaining the country’s long-term foreign and local currency issuer ratings at B3, signalling that improvements in key macroeconomic indicators could eventually support a higher rating if sustained.

The outlook revision comes as fresh economic data show Nigeria’s economy gaining momentum.

Nigeria’s real gross domestic product expanded by 4.43 percent year-on-year in the second quarter of 2026, accelerating from 3.89 percent in the first quarter and 4.23 percent in the corresponding period of 2025.

Real GDP increased to N53.47 trillion from N51.20 trillion a year earlier, adding approximately N2.27 trillion in inflation-adjusted economic output.

The improvement was supported by both oil and non-oil activity.

Nigeria’s oil sector expanded 7.31 percent in real terms as average crude production increased to 1.72 million barrels per day from 1.55 million bpd in the first quarter, while the non-oil economy grew 4.31 percent.

Services grew 4.60 percent, agriculture expanded 4.39 percent and industry recorded growth of 3.96 percent during the quarter.

Telecommunications was particularly strong, growing 10.38 percent and adding about N488.9 billion in real output compared with Q2 2025, while finance and insurance expanded 9.29 percent and construction grew 6.75 percent.

Dollar Buffers Strengthen

Beyond economic growth, Nigeria’s external position has emerged as an important factor behind Moody’s more favourable assessment.

The rating agency pointed to sizeable current-account surpluses, substantial accumulation of foreign exchange reserves and improvements in the functioning of the foreign exchange market as factors strengthening the country’s resilience to external shocks.

Moody’s measure of Nigeria’s gross foreign exchange reserves, which excludes gold, Special Drawing Rights and the country’s reserve position at the International Monetary Fund, increased to approximately $44.4 billion in June 2026 from $31.2 billion a year earlier.

The agency also expects Nigeria to record a current-account surplus equivalent to around 6.1 percent of GDP in 2026, after a surplus of 5.1 percent in 2025.

That external surplus provides an additional buffer against pressure on the naira and Nigeria’s ability to meet foreign-currency obligations.

Moody’s expects the current-account surplus to remain sizeable even if oil prices decline materially, an important consideration for a country whose external earnings remain significantly influenced by developments in the petroleum market.

The Central Bank of Nigeria has separately projected continued strength in the country’s external position in 2026, supported by exports, remittances, higher oil and gas production and increased domestic refining capacity.

Positive Outlook Is Not Yet an Upgrade

Despite the improving indicators, Moody’s stopped short of raising Nigeria’s B3 sovereign rating.

The distinction is significant.

A positive outlook indicates that the balance of risks surrounding the existing rating has shifted sufficiently for an upgrade to become more plausible, but Nigeria must sustain improvements in the areas Moody’s considers important to its credit profile.

The agency continues to identify limited government revenue-generation capacity and weak debt affordability as major constraints, despite Nigeria carrying what it described as a moderate debt burden.

This leaves a clear divide in Nigeria’s sovereign credit position.

External indicators are strengthening as reserves accumulate, the current account remains in surplus and economic growth accelerates, while the government’s capacity to generate sufficient revenue and comfortably service its debt continues to weigh on the rating.

Nigeria’s Credit Profile Improves

Nigeria has already received more favourable assessments from other major international rating agencies this year.

S&P Global Ratings raised Nigeria’s sovereign rating to B from B- in May 2026, citing sustained structural reforms and improving creditworthiness, while Fitch Ratings affirmed the country at B with a stable outlook in April.

Moody’s decision to maintain B3 while moving the outlook to positive therefore adds to evidence that international rating agencies are becoming more constructive about Nigeria’s macroeconomic direction.

The timing of the Moody’s action is also strengthened by the latest GDP numbers.

The 4.43 percent expansion recorded in Q2 was stronger than the first-quarter performance, while increased oil production and continued non-oil growth provided a broader base for the expansion.

However, the economy still faces structural weaknesses.

Manufacturing grew only 3.24 percent, electricity contracted 10.63 percent, and several industrial activities remained under pressure during the second quarter.

For Nigeria to convert Moody’s positive outlook into an eventual rating upgrade, the improvement in external buffers and economic growth will therefore need to be sustained alongside progress in the fiscal areas still constraining the sovereign rating.