Rating agency warns of fiscal strain, inflation pressures, and structural weaknesses even as reforms support short-term stability…..
Fitch Ratings has projected that Nigeria’s external reserves will ease to about $47 billion by the end of 2026, signalling potential headwinds ahead despite recent gains driven by foreign exchange reforms and improved macroeconomic policy direction.
In its latest sovereign assessment, Fitch affirmed Nigeria’s long-term foreign-currency issuer default rating at ‘B’ with a stable outlook. The agency said the current trajectory reflects a delicate balance between recent policy improvements and persistent structural vulnerabilities
Reserves Recovery Faces Possible Reversal
Nigeria’s gross external reserves stood at $49.4 billion as of March 2026, marking a significant rebound from roughly $32 billion recorded in April 2024.
The recovery has been supported by ongoing FX market reforms implemented by the Central Bank of Nigeria, including steps aimed at improving liquidity and easing restrictions on the repatriation of oil export proceeds by international oil companies.
At one point, reserves reached a 17-year high of $50.02 billion on March 11 before moderating slightly to $48.80 billion by April 10.
However, Fitch cautioned that the improvement may not hold in the medium term.
“We forecast a marginal decline to $47 billion at end-2026, reflecting higher spending pressures and external risks,” the agency said.
FX Reforms Support Stability, But Risks Remain
Fitch noted that recent FX reforms have contributed to a gradual normalisation of Nigeria’s foreign exchange market and have helped improve investor sentiment.
The more flexible exchange rate framework and policy adjustments have reduced distortions and supported greater transparency in currency flows.
Still, the agency stressed that these gains remain fragile, warning that structural weaknesses continue to weigh on the economy’s long-term stability.
Deep-rooted Economic Constraints Persist
While acknowledging Nigeria’s key economic strengths including its large domestic market, significant hydrocarbon reserves, and relatively developed local debt market Fitch highlighted several persistent challenges.
These include:
- Weak governance and institutional constraints
- Elevated inflation levels
- Ongoing security concerns
- Heavy dependence on oil revenues
- Low and inefficient revenue mobilisation
Together, these factors continue to limit the country’s credit profile and fiscal flexibility.
Widening Fiscal Pressures Ahead
Fitch also projected that Nigeria’s fiscal deficit could expand to nearly 5 percent of GDP in 2026, driven by rising government expenditure.
The expected increase reflects higher spending on security, social interventions, and election-related fiscal pressures, all of which could place additional strain on public finances.
The agency warned that without stronger revenue performance, fiscal consolidation may remain difficult to achieve.
Inflation Expected to Stay Elevated
Despite some recent moderation in price growth, Fitch expects inflation to remain stubbornly high, averaging around 16 percent in 2026.
It cautioned that renewed fiscal expansion or adjustments in energy prices could quickly reverse any disinflation gains, keeping household purchasing power under pressure.
Growth Outlook Holds Steady
On the positive side, Fitch projected Nigeria’s economy to grow by 4.1 percent in 2026, supported by relative exchange rate stability and continued expansion in the non-oil sector.
The agency also pointed to improvements in the banking sector following recapitalisation measures introduced by the CBN, noting that stronger capital buffers could support lending activity and cross-border operations.
Fitch said Nigeria’s external buffers have improved, with reserves now providing about seven months of import cover above the median for countries in the ‘B’ rating category.
However, it stressed that the country remains exposed to global shocks, particularly oil price volatility and tighter international financial conditions.
What Could Shift the Outlook
While risks are tilted to the downside, Fitch noted that Nigeria’s rating could improve if there is sustained progress in reducing inflation and significantly strengthening government revenue.
Stronger fiscal discipline and more resilient macroeconomic management would also support a positive reassessment over time.
Overall, the outlook reflects an economy in transition, benefiting from recent reforms and improved FX stability, but still constrained by deep structural challenges and rising fiscal pressures.
Fitch’s projection underscores a familiar tension for Nigeria: short-term gains in stability versus longer-term questions around sustainability.
