S&P raises Nigeria’s outlook to stable on Tinubu’s reform

Nigeria’s credit outlook was upgraded to stable from negative by S&P Global Ratings on President Bola Tinubu’s planned reforms.

The debt assessor still scores the nation at B-, six notches into junk and on par with Bolivia and Barbados, according to a Friday statement.

The improved outlook comes after Nigeria’s new leader scrapped costly fuel subsidies, removed the central bank governor and overhauled the nation’s exchange-rate policies.

“The new government is moving ahead with a series of reforms that could, if delivered, benefit growth and fiscal outcomes,” analysts Ravi Bhatia, Samira Mensah and Juili Pargaonkar wrote. “We believe these measures will gradually benefit Nigeria’s public finances and its balance of payments.”

Still, both the nation’s planned fiscal spending and inflation remain high, S&P said. The West African region may also face geopolitical risks tied to the recent coup in neighboring Niger, according to the analysts.

President Tinubu has barely been in power for two months but his radical reforms are already trying the patience of fellow Nigerians. The reforms include the removal of a bogus and corrupt subsidy regime that cost the country an estimated $10 billion last year. Likewise, Tinubu also ended Nigeria’s exchange rate controls which fostered an expensive and inefficient system that hurt investment and created profit opportunities for the well-connected with access to foreign exchange at the subsidized rate.

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These measures have been celebrated by foreign investors, the World Bank and International Monetary Fund. The stock market has risen more than 20% and the country’s dollar-denominated eurobonds have seen double-digit returns since the president’s May 29 inauguration.

However, surging gasoline prices and rampant inflation following the abolition of fuel subsidies and exchange rate reform are hammering the poor in Africa’s most populous nation, where 40% of its citizens live in dire poverty.

High gasoline prices are also keeping a lot of Nigerians off the road and observers now worry that the pain from Tinubu’s actions could boil over as it did in 2020, triggered back then by fury over police brutality.