Fuel subsidies gone, debt burden rises: Nigeria’s complex recovery

Nigeria’s debt servicing is projected to spike during the year, despite confidence in policies implemented in 2023.

• Nigeria’s debt servicing is projected to spike in 2025.
• Fitch Ratings expresses confidence in Nigeria’s economy despite the debt servicing increase.
• Fitch highlights Nigeria’s commitment to policy measures like currency rate liberalization and monetary policy tightening.

Fitch Ratings has estimated that Nigeria’s debt servicing in 2025 would increase despite expressing confidence in the country’s economy.

In a report dubbed ‘Fitch Upgrades Nigeria to ‘B’; Outlook Stable’, Fitch highlighted its increased trust in Nigeria’s broad commitment to policy measures made since its shift to conventional economic policies in June 202.

DON’T MISS THIS: Top 10 African countries that have bought the least weapons from Russia

The policies in question include currency rate liberalization, monetary policy tightening, and moves to stop deficit monetization and eliminate fuel subsidies.

“These have improved policy coherence and credibility and reduced economic distortions and near-term risks to macroeconomic stability, enhancing resilience in the context of persistent domestic challenges and heightened external risks,” the report states.

“The Stable Outlook reflects Fitch’s expectation that the macroeconomic policy stance will sustain improvements in the functioning of the FX market and support the move to lower inflation, although it will likely remain far higher than rating peers.

Additionally, we anticipate a continued reduction in external vulnerabilities through further easing of domestic FC supply constraints, while renewed energy sector reforms should help sustain current account surpluses,” it adds.

SEE ALSO: List of African countries with some kind of engagement with Russia’s private military

After years of financial repression, Nigeria’s central bank tightened monetary conditions by raising policy rates to 27.5% (up 875 basis points since February 2024) and using prudential and operational tools such as open market operations (at rates closely aligned with the MPR) to strengthen monetary policy transmission.

“We project inflation, which reached 23.2% year-on-year in February 2025 under the recently rebased CPI, to average 22% in 2025 (‘B’ median 4.3%) and 20% in 2026,” the report projects.

Despite this, Fitch raised concerns about the country’s external debt, noting that external debt servicing is expected to rise to USD 5.2 billion in 2025.

“Gross official reserves rose to USD41 billion at end-2024, from a low of USD32 billion in mid-2024,” the report states.

“But have since dropped to USD38 billion (covering about five months of current external payments; CXP) due mainly to higher debt service payments,” it adds, highlighting the risks that comes with high external debt servicing.

Nigeria’s current debt profile

Since President Bola Tinubu’s government took over, the World Bank has authorized around 11 loan projects for Nigeria worth $7.45 billion in less than two years.

According to statistics from the Debt Management Office, the World Bank held $17.32 billion of Nigeria’s external debt as of the third quarter of 2024.

Nigeria’s debt to the World Bank’s International Development Association (IDA) is $16.5 billion as of FY2024, making it Africa’s largest debtor and the world’s third-highest, according to the Bank’s financial statements.

Nigeria’s national debt has reached N142 trillion by September 30, 2024.

This represented an increase of N8.02 trillion, driven mostly by the naira’s devaluation, which had a substantial impact on the country’s foreign debt commitments.