Nigeria gets positive sovereign outlook from Moody's, FTSE Russell return as fiscal worries persist

Moody's Ratings has revised Nigeria's sovereign outlook to positive from stable, while FTSE Russell has returned the country to its frontier market classification after nearly three years. The moves are fresh external validation for the Tinubu administration's reforms, but Moody's kept Nigeria's long-term foreign and local currency issuer ratings at B3 and warned that fiscal weakness remains unresolved.

Moody's cites stronger external position

Moody's said the positive outlook reflected changes that, if sustained, could improve Nigeria's capacity to withstand external shocks, strengthen economic resilience and gradually raise government revenue. It cited sizeable current account surpluses, rising foreign exchange reserves, improved foreign exchange market and better, although still weak, transmission of monetary policy as evidence of progress.

“Taken together, the large current account surpluses and the reserve accumulation, if maintained, would materially reduce Nigeria's external vulnerability,” the agency said.

Nigeria's real gross domestic product expanded by four per cent in 2025, prompting Moody's to raise its medium-term growth expectations from about three per cent previously. The agency expects growth to remain around four per cent over the next few years, supported by continued strength in the non-oil economy and rising oil production.

Headline inflation fell to 15.4 per cent in July 2026 from 25.3 per cent a year earlier. Moody's attributed the moderation partly to the fading impact of major price adjustments following exchange-rate liberalisation and fuel subsidy removal, alongside the Central Bank of Nigeria's restrictive monetary policy stance.

Foreign exchange reserves have also strengthened. Moody's said gross reserves, excluding gold, Special Drawing Rights and Nigeria's position at the International Monetary Fund, rose to about $44.4 billion in June 2026 from $31.2 billion a year earlier, equivalent to about six months of imports. The Federal Government, citing Central Bank of Nigeria data, put gross external reserves at $53.3 billion as of August 26.

Fiscal weakness remains

The improvements have not erased the country's fiscal weakness. General government revenue stood at about 10 per cent of GDP in 2025, which Moody's described as among the lowest levels globally. The agency linked the weak revenue position to the large informal economy, extensive exemptions, poor compliance, leakages in oil-related revenue collection and remittances, as well as limited administrative capacity.

Reacting on his X handle, Finance Minister and Coordinating Minister of the Economy, Taiwo Oyedele, described the positive outlook as “an important external validation” of the administration's reforms, including fuel subsidy removal, exchange-rate unification and tax reforms. He said the government's medium-term ambition was to move Nigeria towards investment-grade status but acknowledged that this would require sustained gains in external reserves, stronger domestic revenue mobilisation, improved spending efficiency and better debt affordability.

“Our medium-term ambition is to place Nigeria firmly on the path to investment grade,” he said.

FTSE Russell brings Nigeria back

FTSE Russell said Nigeria would be reclassified from “unclassified” to “frontier market” status from the opening of trading on September 21, 2026. Nigeria was removed from the frontier market in September 2023 over persistent difficulties with capital repatriation and foreign exchange execution.

The latest decision followed improvements in foreign exchange liquidity, capital repatriation and market accessibility, which the Federal Ministry of Finance attributed to the government's macroeconomic and structural reforms.

Oyedele also described the reclassification as “an important validation of Nigeria's reform trajectory” and a foundation for the next phase of capital market development. “It is a meaningful signal to global capital that our market is open, orderly and improving,” he said, adding that the government viewed the development “as a milestone, not a destination.”

The path back into the index had its reservations. FTSE Russell earlier suspended the planned reclassification over concerns about Nigeria's transition from a T+2 to T+1 settlement cycle. The index provider warned that the shorter settlement period could create a de facto prefunding requirement for international institutional investors because of the time needed to complete foreign exchange conversions, investment approvals and settlement fund transfers.

Following further engagement with Nigerian market authorities and feedback from its Equity Country Classification Advisory Committee, FTSE Russell said it had observed no material settlement, operational or funding problems since the implementation of T+1.

For the naira and Nigerian businesses, the combined ratings action and index return signal improved investor confidence in the country's FX market and capital repatriation system. Sustained reserve accumulation and more transparent FX operations are key to keeping that confidence intact, even with fiscal constraints unresolved.