S&P Upgrades Nigeria’s Credit Rating On FX Reforms, Oil Recovery

By Kingsley Ani

S&P Global Ratings recently upgraded Nigeria’s sovereign credit rating to ‘B’ from ‘B-’ while retaining a stable outlook, citing macroeconomic stabilisation driven by exchange rate liberalisation, stronger foreign exchange reserves, improved oil production and fiscal reforms under the Federal Government. The rating action, released yesterday, also referenced the growing contribution of Dangote Industries Limited’s 650,000 barrels-per-day refinery to domestic fuel supply, refined product exports and foreign exchange earnings.

According to S&P: “Following three years of sustained structural reforms, Nigeria’s creditworthiness has improved. Most notably, the liberalisation of the exchange rate has bolstered access to foreign currency and enabled a market-driven exchange-rate environment.”

The agency said that Nigeria’s debt-to-revenue ratio could decline to 338 percent in 2026 from nearly 500 percent in 2023 due to stronger tax revenue and oil remittances. It also projected current account surplus at 5.8 percent of Gross Domestic Product in 2026 from 4.8 percent in 2025. Oil production was estimated at 1.65 million barrels per day in 2025 versus 1.38 million barrels per day in 2022, supported by improved Niger Delta security and reduced crude theft.

However, S&P warned that inflation, fuel price pressures, unemployment and rising poverty remain material risks, particularly ahead of the 2027 general elections.

DECISION HIGHLIGHT
The upgrade signals external validation of Nigeria’s post-2023 macroeconomic reset, particularly the dismantling of fuel subsidies and exchange rate controls. S&P’s decision effectively repositions Nigeria from a high-distress reform story toward a cautiously stabilising frontier economy, though not yet an investment-grade recovery case.

DECISION MEMO
S&P’s upgrade reflects a judgement that Nigeria’s policy architecture is becoming more coherent after years of distortions created by multiple exchange rates, subsidy costs and weak oil remittances. The agency’s emphasis on foreign exchange liberalisation suggests international creditors now view currency transparency as more valuable than short-term exchange rate stability.

The stronger rating also indicates that oil sector recovery is no longer being assessed purely through crude production volumes. S&P’s inclusion of Dangote Refinery in its rationale shows that domestic refining capacity is increasingly being treated as a strategic macroeconomic variable capable of reducing import dependence, conserving foreign exchange and improving trade balances.

Equally significant is the projected decline in debt-service pressure. Nigeria’s debt stock remains elevated, but the rating agency appears more concerned about revenue weakness than nominal debt accumulation. Improved fiscal inflows from taxes and oil earnings therefore become central to sustaining sovereign credibility.

Yet the stable outlook is not a blanket endorsement of economic conditions. S&P explicitly separated macroeconomic repair from household welfare realities. Inflation, fuel costs and poverty remain structurally destabilising variables capable of eroding political support for reforms. The reference to the 2027 elections signals concern that fiscal discipline and market reforms could weaken under electoral pressures.

The upgrade therefore represents conditional confidence, not full re-rating optimism. Nigeria’s sovereign narrative is shifting from crisis management to reform durability testing.

DATA BOX

• Sovereign rating upgraded to: B from B-
• Outlook retained: Stable
• Debt-to-revenue ratio projection for 2026: 338 percent
• Debt-to-revenue ratio in 2023: Nearly 500 percent
• Current account surplus forecast for 2026: 5.8 percent of Gross Domestic Product
• Current account surplus forecast for 2025: 4.8 percent
• Oil production in 2025: 1.65 million barrels per day
• Oil production in 2022: 1.38 million barrels per day
• Dangote Refinery installed capacity: 650,000 barrels per day
• Inflation forecast for 2026: 17.7 percent
• Inflation moderation target by 2028: Below 10 percent

WHO WINS / WHO LOSES

Who Wins

• Federal Government, through improved sovereign credibility and borrowing perception
• Foreign portfolio investors seeking reform-backed frontier market exposure
• Domestic banks and corporates likely to benefit from improved international risk assessment
• Oil producers and exporters from improved sector confidence
• Dangote Industries Limited, whose refinery is now embedded in sovereign macroeconomic assessment

Who Loses

• Consumers facing prolonged fuel and inflationary pressures
• Low-income households exposed to subsidy removal effects
• Import-dependent businesses vulnerable to exchange rate volatility
• Political actors seeking reversal of market reforms before 2027

POLICY SIGNALS

• Exchange rate liberalisation remains the central pillar of Nigeria’s external credibility strategy
• Fiscal authorities are prioritising revenue mobilisation over subsidy-driven consumption support
• Domestic refining is now treated as macroeconomic infrastructure, not merely industrial investment
• Oil security interventions in the Niger Delta are materially influencing sovereign assessments

INVESTOR SIGNAL
The upgrade marginally improves Nigeria’s sovereign risk perception and could lower external financing costs if reform continuity is maintained. It strengthens Nigeria’s positioning within frontier market allocation strategies, particularly for fixed-income investors monitoring currency liquidity and fiscal discipline. However, investors are likely to remain focused on inflation control, exchange rate consistency and political risk ahead of 2027.

RISK RADAR

• Inflation persistence despite monetary tightening
• Rising poverty and unemployment weakening reform legitimacy
• Electoral-cycle fiscal expansion ahead of 2027
• Oil price volatility affecting fiscal buffers
• Potential reversal or dilution of exchange rate reforms
• Continued pressure on household purchasing power from fuel pricing liberalisation