Market News

Nigeria’s economic reforms continue to gain fresh validation from international institutions. Nevertheless, the positive assessments have come with a warning that the country’s underlying fiscal weaknesses remain unresolved, raising questions about how far the gains can go with a poorly managed fiscal system.

This comes as Moody’s Ratings revised Nigeria’s sovereign outlook to positive from stable, while global index provider, FTSE Russell, announced the country’s return to its frontier market classification after nearly three years outside the index.

For the Federal Government, the developments amount to another external validation of the reforms introduced by the President Bola Tinubu administration.

But Moody’s decision to retain Nigeria’s long-term foreign and local currency issuer ratings at B3 suggests that the improved outlook should not be mistaken for a conclusive vote of confidence on the country’s economic outlook.

Moody’s said its positive outlook reflected changes that, if sustained, could improve Nigeria’s capacity to withstand external shocks, strengthen economic resilience and gradually raise government revenue.

It cited sizeable current account surpluses, rising 

foreign exchange reserves, improved foreign exchange market and better, although still weak, transmission of monetary policy as evidence of progress.

“Taken together, the large current account surpluses and the reserve accumulation, if maintained, would materially reduce Nigeria’s external vulnerability,” the agency said.

The improvement in the external position has been accompanied by stronger economic growth. Nigeria’s real gross domestic product (GDP) expanded by four per cent in 2025, prompting Moody’s to raise its medium-term growth expectations from about three per cent previously.

The agency expects growth to remain around four per cent over the next few years, supported by continued strength in the non-oil economy and rising oil production.

It also noted the decline in headline inflation, which fell to 15.4 per cent in July 2026 from 25.3 per cent a year earlier. Moody’s attributed the moderation partly to the fading impact of major price adjustments following exchange-rate liberalisation and fuel subsidy removal, alongside the Central Bank of Nigeria’s (CBN) restrictive monetary policy stance.

Foreign exchange reserves have also strengthened. Moody’s said gross reserves, excluding gold, Special Drawing Rights and Nigeria’s position at the International Monetary Fund, rose to about $44.4 billion in June 2026 from $31.2 billion a year earlier, equivalent to about six months of imports.

The Federal Government, citing Central Bank of Nigeria data, put gross external reserves at $53.3 billion as of August 26.

However, the improvements have not erased the country’s fiscal weakness, which remains central to Moody’s assessment.

General government revenue stood at about 10 per cent of GDP in 2025, which Moody’s described as among the lowest levels globally. The agency linked the weak revenue position to the large informal economy, extensive exemptions, poor compliance, leakages in oil-related revenue collection and remittances, as well as limited administrative capacity.

The concern is significant because stronger reserves, lower inflation and improved foreign exchange conditions do not, on their own, resolve the government’s capacity to raise enough revenue, fund public services and meet its obligations.

Reacting to the ratings on his X, the Finance Minister and Coordinating Minister of the Economy, Taiwo Oyedele, described the positive outlook as “an important external validation” of the administration’s reforms, including fuel subsidy removal, exchange-rate unification and tax reforms.

Oyedele said the government’s medium-term ambition was to move Nigeria towards investment-grade status but acknowledged that this would require sustained gains in external reserves, stronger domestic revenue mobilisation, improved spending efficiency and better debt affordability.

“Our medium-term ambition is to place Nigeria firmly on the path to investment grade,” he said.

The FTSE Russell decision provides another indication that some of the market-access problems previously undermining Nigeria’s standing with international investors are easing.

FTSE Russell said Nigeria would be reclassified from “unclassified” to “frontier market” status from the opening of trading on September 21, 2026.

Nigeria was removed from the frontier market in September 2023 over persistent difficulties with capital repatriation and foreign exchange (FX) execution.

The latest decision followed improvements in foreign exchange liquidity, capital repatriation and market accessibility, which the Federal Ministry of Finance attributed to the government’s macroeconomic and structural reforms.

Oyedele also described the reclassification as “an important validation of Nigeria’s reform trajectory” and a foundation for the next phase of capital market development.

“It is a meaningful signal to global capital that our market is open, orderly and improving,” he said, adding that the government viewed the development “as a milestone, not a destination.”

Yet, the path back into the index was not without reservations. FTSE Russell had earlier suspended the planned reclassification over concerns about Nigeria’s transition from a T+2 to T+1 settlement cycle.

The index provider warned that the shorter settlement period could create a de facto prefunding requirement for international institutional investors because of the time needed to complete foreign exchange (FX) conversions, investment approvals and settlement fund transfers.

Following further engagement with Nigerian market authorities and feedback from its Equity Country Classification Advisory Committee, FTSE Russell said it had observed no material settlement, operational or funding problems since the implementation of T+1.

The eventual reclassification represents a reversal of some of the market-access concerns that led to Nigeria’s removal in the first place, rather than proof that all structural problems have disappeared.

For the government, the developments strengthen its case that the reforms are beginning to produce results. It plans to continue working with regulators and market institutions to deepen liquidity, widen participation and strengthen investor protection, with emerging market status as its medium-term objective.

But the assessments also place a higher burden on the government to sustain the gains. Moody’s positive outlook is conditional on the improvements being maintained, while the continued B3 rating and concerns over weak fiscal strength show that Nigeria still has substantial ground to cover before the reform story translates into stronger sovereign creditworthiness.