Nigeria’s credit rating upgrade is welcome. The journey to an ‘A’ has only just begun

Standard & Poor’s decision to upgrade Nigeria’s sovereign credit rating from B- to B, with a stable outlook, marks one of the most significant endorsements of the country’s economic reforms in over a decade. Coming after similar positive actions by other international rating agencies, the upgrade sends an important signal to global investors that Nigeria is gradually rebuilding macroeconomic credibility after years of policy distortions and external shocks.

While a ‘B’ rating remains within speculative-grade territory and is still far from investment grade, the upgrade demonstrates that difficult economic decisions are beginning to produce measurable results. It is also an acknowledgement that credibility in economic management cannot be built overnight; rather, it is earned through consistent policy implementation, institutional discipline, and market confidence.

The importance of sovereign credit ratings cannot be overstated. They influence the cost at which governments borrow internationally, shape investor confidence, affect private sector access to global capital, and often determine how multinational corporations perceive investment risks in emerging economies. Every notch of improvement reduces financing costs and expands access to international capital markets.

The courage to implement difficult reforms is crucial. Much of the credit for this improvement lies in the willingness of the Nigerian authorities to undertake politically difficult reforms that previous administrations postponed for years.

Among the most consequential reforms has been the liberalisation of Nigeria’s foreign exchange market. For years, multiple exchange rates created distortions, encouraged arbitrage, discouraged foreign investment, and led to severe shortages of foreign exchange.

Allowing market-based price discovery was painful. The naira depreciated sharply, inflation initially accelerated, and businesses experienced adjustment pressures. Yet, these were inevitable consequences of correcting years of accumulated distortions.

Today, international investors have greater confidence that foreign exchange can be accessed transparently. The elimination of large FX backlogs has significantly improved market functioning, while higher foreign exchange reserves have strengthened Nigeria’s external position. S&P specifically cited these improvements in its assessment.

The removal of fuel subsidies represented another bold fiscal reform. For decades, subsidies consumed enormous public resources while disproportionately benefiting wealthier consumers and creating opportunities for inefficiency and rent-seeking.

Redirecting these resources towards infrastructure, education, healthcare and social investments offers Nigeria a far more sustainable path to long-term development.

The Olayemi Cardoso-led Central Bank’s critical role

No discussion of Nigeria’s improving credit profile would be complete without recognising the role played by the Central Bank of Nigeria (CBN).

Following a period during which monetary policy credibility had weakened, the CBN has taken important steps to restore confidence.

Its commitment to tighter monetary policy has helped moderate inflationary expectations while signalling its determination to prioritise price stability. The bank has also strengthened transparency in foreign exchange operations, improved monetary policy communication, rebuilt investor confidence, and enhanced coordination with fiscal authorities.

Equally important has been the rebuilding of Nigeria’s external reserves and renewed efforts to restore confidence among foreign portfolio investors.

Although inflation remains higher than desirable, restoring monetary credibility is itself a major institutional achievement. Central banks are ultimately judged not merely by interest rate decisions but by the confidence they inspire among markets, businesses and citizens.

Fiscal reforms are beginning to bear fruit

The federal government has equally pursued measures aimed at strengthening fiscal sustainability.

Revenue mobilisation has improved, tax administration is gradually becoming more efficient, and government finances are becoming less dependent on unsustainable borrowing.

Higher oil production, increased domestic refining capacity, especially by the Dangote refinery, and improvements in public revenue have all contributed to stronger fiscal metrics. But the government can do more in reducing the size of government, spending on non-productive projects and tackling massive corruption.

S&P also highlighted the positive contribution of increased oil output and the expansion of domestic refining capacity in strengthening Nigeria’s external and fiscal position.

The commencement of large-scale domestic refining is especially significant. Reducing dependence on imported petroleum products improves Nigeria’s balance of payments, conserves foreign exchange, strengthens energy security, and creates additional industrial value chains within the economy.

However, for some of us concerned Nigerians and our international development partners, a ‘B’ rating is not the destination.

Despite this encouraging progress, it is important to remain realistic.

A ‘B’ rating still signals that Nigeria remains vulnerable to economic shocks. The country continues to face structural challenges that constrain its sovereign credit profile.

Among these are:

• Persistently high inflation.

• Low government revenue relative to GDP.

• High debt servicing costs.

• Infrastructure deficits, especially electricity and rail networks.

• Elevated unemployment and underemployment.

• Widespread poverty and high misery index.

• Governance and institutional weaknesses.

• Need for the 36 states’ governments to do more in addressing poverty and unemployment.

These are not issues that monetary policy alone can resolve.

What would it take to reach an ‘A’ rating?

Moving from B to A would require more than cyclical economic improvement; it would demand sustained structural transformation over many years.

First, Nigeria must significantly expand non-oil revenues. Government revenue as a percentage of GDP remains among the lowest globally. Broader tax compliance, digital tax administration, and formalisation of the informal economy are essential. Thanks to the Taiwo Oyedele tax reforms.

Secondly, inflation must be brought firmly into single digits and remain there consistently. Price stability is one of the strongest indicators of macroeconomic maturity.

Thirdly, debt servicing must continue to decline relative to government revenue. Sustainable borrowing requires stronger fiscal buffers and prudent expenditure management.

Fourthly, Nigeria must dramatically improve electricity generation, transmission, and distribution, a subject so close and dear to my heart as a former electricity market participant and as an executive director in the Transmission Company of Nigeria (TCN).

No country has achieved advanced industrial status without reliable and affordable power.

Fifthly, governance reforms must deepen. Investors seek predictable institutions, transparent regulation, independent courts, effective anti-corruption measures, and policy consistency across political administrations.

Sixthly, economic diversification must accelerate. Agriculture, manufacturing, technology, financial services, digital industries, healthcare, creative industries and artificial intelligence should become major drivers of export earnings.

Finally, Nigeria must invest far more aggressively in human capital. Education, research, innovation, healthcare, and digital skills are becoming the true determinants of national competitiveness in the age of artificial intelligence.

AI could become Nigeria’s next credit story

Looking ahead, artificial intelligence presents Nigeria with a unique opportunity.

Countries that successfully deploy AI across public administration, tax collection, healthcare, agriculture, education, financial services and manufacturing will experience significant productivity gains.

AI-enabled governments can improve tax compliance, reduce leakages, enhance public service delivery, strengthen financial supervision, improve customs administration and reduce corruption.

For investors, such improvements translate directly into stronger institutions, higher productivity, and lower sovereign risk.

Nigeria should therefore view AI not simply as a technology initiative but as an economic reform strategy capable of accelerating the country’s journey towards investment-grade status.

A moment to build upon S&P’s upgrade should neither be exaggerated nor underestimated.

It is not a declaration of victory. It is a vote of confidence that Nigeria is moving in the right direction.

The real challenge now is maintaining reform momentum regardless of political cycles. Markets reward consistency far more than isolated policy announcements.

If Nigeria remains committed to fiscal discipline, independent monetary policy, institutional strengthening, economic diversification, infrastructure development and AI-driven productivity, today’s ‘B’ rating could become tomorrow’s ‘BB’, ‘BBB’, and ultimately an ‘A’.

That journey will not be easy. But for the first time in many years, it appears increasingly achievable.

Sonny Iroche is the founder and chief executive officer of GenAI Learning Concepts Ltd, Lagos. He is an artificial intelligence strategist, corporate governance adviser, Oxford-trained AI executive, and former Executive Director (Finance & Accounts) of the Transmission Company of Nigeria. He advises boards, governments and financial institutions on AI strategy, governance, digital transformation and economic competitiveness.