Moody’s Upgrades Nigeria To B3, Outlook Now Stable

Moody’s, the international credit rating agency, has upgraded Nigeria’s sovereign rating from Caa1 to B3, while adjusting the outlook from positive to stable. This revision reflects substantial progress in strengthening the country’s external balances and fiscal fundamentals.

In a statement announcing the rating upgrade, the company, said: “Moody’s Ratings (Moody’s) has today upgraded the Government of Nigeria’s long-term foreign currency and local currency issuer ratings to B3 from Caa1 and changed the outlook to stable from positive.

“We have also upgraded Nigeria’s foreign currency senior unsecured debt ratings to B3 and the foreign currency senior unsecured MTN program rating to (P)B3 from Caa1 and (P)Caa1 respectively.

“The upgrade reflects significant improvements in Nigeria’s external and fiscal positions.

“A more flexible exchange rate has greatly bolstered external reserves. Concurrently, the removal of oil

subsidies has alleviated budgetary spending pressures. Initially, these policy shifts posed inflationary risks, with, as a result, a potential for policy reversal.

“These risks have now diminished, with inflation and domestic borrowing costs showing nascent signs of easing, giving us confidence that the policy changes are becoming more entrenched. Moreover, tax reforms have started yielding results. “Although vulnerabilities related to oil prices and the exchange rate remain, Nigeria’s more robust buffers support a B3 rating.

‘The stable outlook means we expect Nigeria’s recent progress on external and fiscal fronts to continue, though at a slower pace if oil prices fall. We assume current policies—like the flexible exchange rate—will stay in place, supported by a healthy balance of payments. Over the next fewyears, we expect debt to level off at 50% of GDP, with interest payments taking up about 35% of government revenue.

“Risks are balanced, with the Central Bank of Nigeria (CBN) potentially facing difficulties in upholding a flexible exchange rate if oil prices decline further, weakening the naira and increasing the government debt burden.

It was noted that persistent high inflation could hinder the normalization of interest rates. However, a consistent track record of flexible exchange rate policies and successful revenue reforms was seen as potentially beneficial—likely to improve business sentiment, reduce interest rates, and stimulate economic growth beyond baseline projections.

Furthermore, Nigeria’s local currency (LC) and foreign currency (FC) country ceilings were said to have been raised to Ba3 and B2, respectively, up from B2 and Caa1. The LC ceiling at Ba3 was reported to be three notches above the sovereign issuer rating, reflecting a degree—though reduced—of unpredictability in government actions and associated political risks. The FC ceiling at B2 was maintained two notches below the LC ceiling, due to ongoing transfer and convertibility risks.