Nigeria’s credit outlook was upgraded to stable from negative by S&P Global Ratings on President Bola Tinubu’s planned reforms.
The debt assessor still scores the nation at B-, six notches into junk and on par with Bolivia and Barbados, according to a Friday statement.
The improved outlook comes after Nigeria’s new leader scrapped costly fuel subsidies, removed the central bank governor, and overhauled the nation’s exchange-rate policies.
“The new government is moving ahead with a series of reforms that could, if delivered, benefit growth and fiscal outcomes,” analysts Ravi Bhatia, Samira Mensah, and Juili Pargaonkar wrote.
“We believe these measures will gradually benefit Nigeria’s public finances and its balance of payments.”
Still, both the nation’s planned fiscal spending and inflation remain high, S&P said. “The West African region may also face geopolitical risks tied to the recent coup in neighboring Niger.”
President Bola Tinubu’s decision to remove costly fuel subsidies and float the foreign exchange rate brought significant economic advantages to Nigeria. These bold reforms have reshaped the nation’s financial landscape, attract foreign investments, and bolstered economic growth.
The removal of fuel subsidies is a crucial step in reducing the financial burden on the government. For years, these subsidies have strained the country’s finances, resulting in budget deficits and increased debt. By cutting the subsidies, the government can redirect funds towards critical sectors like healthcare, education, and infrastructure, promoting long-term economic development.
Also, floating the foreign exchange rate can foster a more flexible and market-driven currency valuation. This move can help Nigeria address currency imbalances, enhance export competitiveness, and attract foreign investors. A floating exchange rate allows the currency to adjust to changing economic conditions, which, in turn, can reduce the reliance on foreign exchange reserves to defend a fixed rate.
