S&P upgrade signals Nigeria’s best economic outlook in a decade

For only the second time in history, S&P Global Ratings has upgraded Nigeria’s outlook to ‘positive’ from ‘stable,’ while affirming the country’s sovereign credit ratings at ‘B-/B.’

This marks Nigeria’s strongest position with the agency since February 2015, when it held a ‘BB-‘ rating under a negative watch.

S&P attributed the upgrade to the improvement in “external, economic, fiscal, and monetary results,” recognising the breadth of economic reforms under the Bola Tinubu administration.

The agency further noted that authorities are “taking steps to improve the economy’s growth prospects and macroeconomic resilience.”

The last positive outlook from S&P was in December 2011. Prior to that, the country had faced two successive downgrades in 2009 due to a sharp fall in global oil prices, which the agency said would erode the nation’s fiscal buffers and weaken its credit profile.

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For S&P, a positive outlook on Nigeria is not a given. In fact, it is relatively rare. By contrast, similar positive revisions from Moody’s and Fitch have been more frequent over the years, making S&P’s latest decision particularly significant.

S&P now says it may upgrade Nigeria’s ratings from B- to BB within the next 12 months if the country “continues to exceed their forecasts.”

What are they looking at?

The agency pointed to Nigeria’s improving structural indicators and sustained reform momentum since mid-2023 as key factors. It cited a series of major policy shifts – including the liberalisation of the exchange-rate regime, removal of long-standing fuel subsidies, tighter fiscal controls, stronger revenue collection, rising oil production and the commissioning of the Dangote refinery- as measures that have repositioned the economy for gradual but firmer stabilisation.

While vulnerabilities remain, S&P expects measured but consistent gains, projecting average gross domestic product (GDP) growth of 3.7 percent between 2025 and 2028, along with a decline in inflation toward 13 percent by 2028.

It also highlighted Nigeria’s current-account surpluses, which have helped boost external reserves toward $44 billion. This, according to S&P, will strengthen Nigeria’s financing capacity. However, the agency also noted that election-related spending pressures ahead of 2027 may widen fiscal strains, though it still forecasts that the general government deficit will average 3.2 percent of GDP over 2025–2028.

CPC designation unlikely to have material impact

S&P noted that the recent U.S. designation of Nigeria as a ‘country of particular concern’ could weigh on investor sentiment but is unlikely to materially affect the country’s growth trajectory. Still, the agency warned that Nigeria remains vulnerable to external shocks, pointing out that foreign investors now hold roughly a quarter of local currency government debt and that the first quarter (Q1) of the year saw a $4 billion outflow.

It further cautioned that Nigeria’s deep-rooted structural weaknesses – including very low per-capita income, high poverty levels, weak data transparency, narrow fiscal revenue and elevated debt-service costs – will take time to ease even under favourable policy conditions.

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Finance minister cheers upgrade

Reacting to the announcement, Wale Edun, minister of Finance and coordinating minister of the Economy, expressed delight, saying the revised outlook validates the government’s difficult but necessary reforms.

Edun said S&P’s assessment aligns with the administration’s expectations and reflects early gains being recorded. These include firmer growth prospects, rising external buffers, and more predictable monetary-policy outcomes.

He emphasised that the government remains committed to sustaining reforms despite current challenges, noting that renewed confidence from international ratings agencies is strengthening the government’s resolve. According to him, this support is helping to drive coordinated policies aimed at restoring macroeconomic stability.

Potential impact

Since S&P began rating Nigeria in 2006, the country has never reached investment-grade status. Its strongest position came in November 2012, when it earned a ‘BB-‘ rating with a stable outlook.

Credit ratings have significant implications for the pricing of sovereign debt, particularly in determining yields on government-issued bonds. To understand the effect of the 2012 upgrade, it is instructive to look back at Nigeria’s domestic and external issuances around that period.

In November 2012, the federal government issued the 16 percent FGN JUN 2019 and 16.39 percent FGN JAN 2022 bonds, seven- and 10-year instruments respectively.

Yet both were heavily oversubscribed at bid levels far below their coupon rates. Investors offered between 11 percent and 14.5 percent for the seven-year bond, and between 10.5 percent and 14 percent for the 10-year note, demonstrating strong appetite and confidence.

The effect was even clearer in Nigeria’s Eurobond market. At the time, the country had only one outstanding Eurobond: the $500 million 6.75 percent JAN 2021 issuance.

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Following S&P’s upgrade to ‘BB-‘ with a stable outlook, yields on the bond plunged to record lows of under four percent by December 2012, reflecting surging demand and improved investor sentiment.

“Today’s positive outlook, while not yet a rating upgrade, signals growing global confidence in Nigeria’s macroeconomic direction, a shift that, if sustained, could eventually translate into more favourable borrowing costs and a stronger external position,” a Lagos-based financial analyst said.

Ike Ibeabuchi, an emerging markets expert, cheered the positive news, noting that, “it is a further signal to investors that Nigeria means business.”

He commended President Tinubu’s reforms, stressing that the “government must now target growth to impact directly on the people.”