Fitch Ratings affirmed its long-term foreign and local currency Issuer Default Ratings (IDR) on Nigeria at BB- and BB, respectively, with stable outlooks. Fitch noted that the foreign exchange market and international reserves have been stabilising after the shock of central bank governor Sanusi's suspension on February 20 with the inter-bank NGN/USD rate strengthening from its lows, although remaining outside the upper limit of the 155 plus or minus 3% band. Despite having fallen during the past year, reserves remain in line with BB peer medians at a Fitch projected 4.6 months current account payments (CXP) at end 2014.

The ratings agency said that the central bank should retain its autonomy over monetary and financial policies, notwithstanding the suspension of the former governor. In March, the bank tightened further its monetary stance with an increase in the private sector cash reserve requirement to 15%, despite a fall in inflation to a new low of 7.7% in February, within the target range of 6%-9%.

Other factors supporting the ratings on Africa’s biggest oil producer include improving oil production and increased efforts to tackle pipeline vandalism and oil theft, which have contributed to a rise in the Excess Crude Account (ECA) in March; the approval of a tight budget for this year, which aims to boost the ECA and envisages lower revenue (more realistic) and spending; a low debt burden of 12.6% of the recently rebased GDP; continued strong economic growth, which has averaged 6.8% over the past five years, led by non-oil growth of an average 7.7%; and relatively strong current account surplus, debt service ratio and external liquidity.

Fitch noted that the GDP rebasing exercise showed a more diversified economy, with the non-oil sector comprising 86% of GDP and services accounting for 52% of GDP (previously 29%), while the share of the oil and agriculture sectors have been reduced. On the other hand, FDI is less than 1% of GDP, amongst the lowest in the region, reflecting, according to Fitch, poor infrastructure, inadequate power supplies and widespread corruption.

Fitch said that Nigeria's ratings are constrained by weak governance, low per capita income, the vulnerability of public finances and reserves to oil price volatility, and some political and security uncertainty ahead of the February 2015 presidential and gubernatorial elections.