By Kingsley Benson
Moody’s has revised Nigeria’s outlook from “stable” to “positive,” reflecting stronger foreign exchange reserves and an enhanced ability to withstand external shocks. This marks a fresh vote of confidence in the country’s improving external position.
In a rating action published recently, Moody’s also pointed to Nigeria’s economic growth and relative stability in key macroeconomic indicators as factors behind the improved outlook.
The development adds to a series of recent developments supporting a more favourable assessment of Nigeria’s investment environment. The country’s foreign exchange reserves have risen substantially, reaching its highest level in at least two decades.
The improvement is significant given the pressure on Nigeria’s external buffers in previous years. Foreign reserves had fallen to $32.1 billion in April 2024 amid the early phase of the federal government’s sweeping currency reforms.
The stronger reserve position now gives the economy a larger cushion against external disruptions, while providing greater capacity to meet foreign exchange obligations and support confidence in the naira and wider economy.
Rising oil production and stronger crude prices have also strengthened Nigeria’s external earnings. The country has recorded average oil production of about 1.7 million barrels per day (mbpd), including condensates, over the last four months.
The improvement in production comes as international oil markets face renewed supply concerns following the outbreak of hostilities involving the United States, Israel and Iran.
Brent crude, the benchmark for Nigerian oil, traded at $71.3 per barrel on February 27, before hostilities began, compared with $88.3 per barrel last Friday.
Higher production combined with stronger oil prices could provide additional support for government revenues and foreign exchange inflows, although Nigeria’s exposure to oil market volatility remains a structural vulnerability.
The federal government is seeking to build on the recent improvement in production, with an ambitious target of reaching three million barrels per day by 2030.
Improved security in oil-producing areas is expected to be central to achieving that target, particularly as the government seeks to sustain production gains and attract greater investment into the sector.
Despite the improved outlook, Moody’s retained Nigeria’s sovereign rating at “B3”, reflecting continued constraints on the government’s ability to mobilise revenue and limited debt service capacity.
The distinction is important. While the positive outlook suggests that Nigeria’s credit conditions could improve if current trends are sustained, the unchanged rating indicates that significant fiscal and structural weaknesses remain.
The Moody’s decision comes alongside another development in Nigeria’s capital market. FTSE Russell, a global provider of financial market indices, confirmed the country’s reclassification to frontier market status, effective this month.
The reclassification had faced uncertainty after concerns emerged over Nigeria’s transition from a T+2 securities settlement cycle to T+1, which took effect in June.
Questions over the implementation and communication of the new settlement arrangement had raised concerns among international investors, traders and analysts about whether transactions would require foreign investors to prefund trades.
Such a requirement could increase transaction costs and reduce the attractiveness of Nigerian equities to international portfolio investors.
The concerns prompted FTSE Russell to temporarily pause the planned reclassification before the latest confirmation.
The return to frontier market status could nevertheless provide a channel for fresh international investment into Nigerian equities.
Arnold Dublin-Green, Managing Director and Chief Executive Officer of Renaissance Asset Management, previously told PREMIUM TIMES that the reclassification could potentially attract up to $800 million in foreign portfolio inflows under an optimistic scenario.
“The idea of the FTSE and frontier index was that the inclusion meant that we are expecting a good amount of foreign portfolio inflows,” he said, estimating that between $100 million and $400 million could enter the equity market.
“Outside of that, there are active investors who will want to beat the index, and that inflow could be another $400 million or so,” he added.
Taken together, the Moody’s outlook and FTSE Russell development present Nigeria with an opportunity to strengthen investor confidence. But the benefits will depend on whether stronger external buffers, improved oil production and growing economic activity are sustained alongside progress in fiscal management and debt servicing capacity.
For policymakers, the positive outlook is therefore less a conclusion than a measure of what Nigeria could achieve if the gains recorded in its external position are consolidated.
