The removal of fuel subsidy and President Bola Tinubu’s commitment to implement a unified exchange rate are positive developments for Nigeria’s credit profile, Fitch Ratings said in a new report. 

Nonetheless, the reform agenda continues to face execution risks and lacks specific detail, mainly measures to address other challenges to the country’s credit profile, such as structurally “very low” non-oil budget revenue.

Fitch anticipates the new government will display a “somewhat more reformist and market-friendly” approach compared to the previous administration under President Muhammadu Buhari. 

The progress on subsidy and exchange-rate reform was critical in Fitch’s decision to affirm Nigeria’s rating at ‘B-’ with a stable outlook in May 2023. 

The petroleum subsidy withdrawal, which cost more than 2% of GDP last year, has been swift, providing assurance over the government’s commitment to reform.

The risk of backtracking remains “fairly low”, given the political capital the president has invested in the fuel subsidy’s removal.

“The government is planning substantial new transfers to help cushion the social impact, but we still expect the net effect of the reform to support fiscal consolidation,” Fitch noted.

(Editing by Seban Scaria seban.scaria@lseg.com )