Moody’s boost cuts risk as Nigeria eyes investment-grade status

Nigeria’s improving economic fortunes have received a fresh vote of confidence from global markets, with Moody’s moving the country’s sovereign outlook to positive from stable as foreign reserves climb to $53.11 billion, while the Federal Government sets its sights on eventually achieving investment-grade status.

Moody’s nevertheless retained Nigeria’s long-term foreign and local currency issuer ratings at B3, making clear that stronger external buffers have yet to overcome the country’s persistent weaknesses in domestic revenue generation and debt affordability.

The outlook upgrade comes at a potentially important turning point for Nigeria’s economy. The country’s foreign reserves have risen by about $7.09 billion since the beginning of 2026, reaching $53.11 billion on August 24 — the highest level in more than 17 years.

The latest reserve position has also exceeded the Central Bank of Nigeria’s projected $51.04 billion year-end reserve level, providing a larger cushion against external shocks and strengthening the country’s ability to meet foreign-currency obligations.

Moody’s said stronger reserves, current-account surpluses, improved functioning of the foreign-exchange market and better monetary-policy transmission were among the factors behind its decision.

The agency also expects Nigeria’s current-account surplus to remain sizeable even if crude oil prices weaken materially. Higher oil prices linked to the Middle East conflict and increasing exports of refined petroleum products have further supported the country’s external position.

The Federal Government welcomed the decision as evidence that the economic reforms implemented since 2023 are beginning to gain international recognition.

Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, said the positive outlook validated what he described as difficult but necessary reforms, including the removal of the petrol subsidy, foreign-exchange reforms and the new tax regime.

“Moody’s positive outlook is an important external validation of the difficult but necessary reforms this administration has implemented,” Oyedele said.

He said the government’s medium-term ambition is to put Nigeria firmly on the path to investment-grade status, but acknowledged that substantially stronger domestic revenue, more efficient public spending and better debt affordability would be required.

The challenge is evident in Nigeria’s fiscal position.

Despite the improvement in external reserves and economic growth, government revenue remains relatively low compared with the size of the economy, while debt-servicing costs continue to absorb a large share of fiscal resources.

Nigeria’s real GDP growth stood at 3.89 per cent year-on-year in Q1 2026, driven largely by agriculture and services, but the government still faces the task of translating improving macroeconomic indicators into stronger fiscal capacity.

Moody’s decision follows a series of more favourable assessments of Nigeria by international market institutions.

S&P Global Ratings upgraded Nigeria’s sovereign rating to B from B- in May 2026, while Fitch Ratings affirmed the country at B with a stable outlook.

Nigeria also regained an important foothold in global capital markets this week when FTSE Russell confirmed that it would return the country to Frontier Market status on September 21, 2026, after leaving Nigeria unclassified over foreign-exchange and market-access concerns.

The FTSE decision followed the successful implementation of the T+1 settlement cycle and a review that found no material settlement, operational or funding problems.

Taken together, the developments point to a gradual improvement in the international perception of Nigeria’s economic management.

The International Monetary Fund has, however, urged Nigeria to deepen fiscal, monetary and governance reforms, particularly in domestic revenue mobilisation, public financial management, expenditure efficiency and transparency.

That warning underscores the gap between improved external resilience and Nigeria’s remaining structural weaknesses.

For investors, Moody’s positive outlook could help lower perceptions of sovereign risk over time and improve the environment for foreign capital, although the retained B3 rating means Nigeria remains several steps away from investment-grade territory.

The real test will be whether the stronger $53.11 billion reserve position, 3.89 per cent GDP growth and improved FX market conditions can be sustained while the government raises revenue, controls expenditure and brings down the relative burden of debt servicing.

For now, Moody’s has shifted Nigeria from stable to positive, a meaningful upgrade in direction, but one that leaves the country with a much harder task ahead: turning improving external numbers into durable fiscal strength and ultimately an investment-grade credit profile.