Emmanuel Ojukwu
Amidst mounting economic challenges in Nigeria, the country’s fiscal and monetary policy reforms have received a significant endorsement from Fitch, a global rating agency.
Fitch’s latest review has upgraded Nigeria’s economic outlook from stable to positive, signaling an improvement in the nation’s creditworthiness and bolstering its position for international borrowing.
The credit rating upgrade underscores Nigeria’s progress towards financial stability, driven by key reforms in foreign exchange liberalization, fuel subsidy removal, and recent electricity tariffs hikes. These reforms, according to Fitch, have contributed to the restoration of macroeconomic stability and enhanced policy coherence and credibility within the country.
In a statement released on May 3, Fitch highlighted the positive impact of the implemented reforms, noting a reduction in distortions stemming from previous unconventional monetary and exchange rate policies. The reforms have facilitated the return of substantial inflows to the official foreign exchange market, marking a significant milestone in Nigeria’s economic trajectory.
Despite these advancements, Fitch also acknowledged the presence of short-term challenges, notably high inflation and ongoing volatility in the foreign exchange market. The sustainability of the commitment to reform remains subject to scrutiny, with the durability of policy adjustments yet to be fully tested.
The Central Bank of Nigeria (CBN) has intensified efforts to reform the monetary and exchange rate framework, following last year’s unification of multiple exchange rate windows. The collapse of the large differential between official and parallel market rates, coupled with increased formalization of foreign exchange activity and monetary policy tightening, has led to notable improvements in foreign portfolio investment inflows and the appreciation of the naira at the official exchange window.
However, Fitch highlighted ongoing concerns regarding the clarity of Nigeria’s net foreign exchange reserves, which continue to constrain the country’s sovereign credit profile. The recent increase in the monetary policy rate by the CBN, alongside projections for further rate hikes and inflation moderation in the coming years, reflects efforts to strengthen monetary policy transmission and address inflationary pressures.
