Sovereign investment-grade rating requires sustained reforms,

Nigeria’s ambition to attain investment-grade sovereign credit status will require sustained improvements in government revenue, institutional quality and policy consistency, rather than a short-term increase in economic growth, experts have said.

They argued that the ability of governments to generate revenue and meet debt obligations remains a more decisive measure of sovereign creditworthiness than the size of an economy or its debt-to-gross domestic product (GDP) ratio alone.

The position was canvassed at the sixth International Credit Rating Webinar held earlier, where the Head of Macroeconomics and Public Finance Research at RWI, Professor Torsten Schmidt, and Associate Professor of Economics at the University of St. Gallen, Professor Kai Gehring, examined the reforms needed to improve sovereign credit ratings.

Schmidt said economic output did not automatically translate into the capacity to repay public debt, stressing that government revenue was the critical link between economic growth and debt-servicing capacity.

He argued that while economic expansion could increase the resources available for taxation, the effectiveness of revenue collection ultimately determined how much of that growth translated into government income.

The challenge is particularly significant for Nigeria, where Gehring estimated government revenue at about 10 per cent of GDP. He also noted that interest payments consume more than half of Federal Government revenue, leaving limited fiscal space for other public obligations and development spending.

The experts said countries seeking stronger sovereign ratings needed to broaden their tax bases, improve compliance and strengthen revenue administration. They also cautioned against using debt-to-GDP ratios as the sole measure of fiscal risk, noting that countries with relatively high debt levels could retain strong creditworthiness where institutions and revenue-generating capacity supported debt repayment.

Gehring described the path to investment-grade status as “a marathon, not a sprint”, citing research indicating that only one of 35 sovereigns with ratings comparable to Nigeria’s had attained investment grade within five years.

The finding highlights the difficulty of achieving rapid rating upgrades and the importance of demonstrating that economic and fiscal reforms can be sustained over several years.

Schmidt identified productivity growth, capital formation and higher income per capita as important foundations for stronger sovereign credit quality. He also highlighted government efficiency, the rule of law and the quality of the legal environment as factors that influence the assessment of a country’s ability to meet its financial obligations.

The experts further warned that policy reversals could weaken investor confidence and undermine progress towards improved credit ratings. Gehring said rating assessments considered whether reforms were likely to remain in place throughout the life of long-term government bonds.

He argued that reforms were more likely to endure when their benefits attracted support across political parties, regions and social groups, reducing the risk of reversal following changes in government.

Transparency and reliable public data were also identified as essential to strengthening confidence, enabling investors to assess fiscal conditions, economic performance and security risks more accurately.

Schmidt added that fiscal rules could help ensure public borrowing was channelled towards productive investment rather than recurrent consumption. For commodity-dependent economies such as Nigeria, he said, export diversification and reduced exposure to oil-price volatility were also important to improving economic resilience.

A stable inflation and exchange-rate environment, supported by credible monetary institutions, could further encourage private investment and strengthen the foundations of long-term growth.

The discussions underscored that Nigeria’s investment-grade ambition will depend on its ability to convert economic growth into stronger public revenue, contain debt-servicing pressures and build institutions capable of sustaining reforms. For sovereign credit assessors, the consistency and durability of these improvements will matter as much as the targets governments set.