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  • FX reforms, compliance drive Nigeria’sremoval from EU’s high-risk list

    FX reforms, compliance drive Nigeria’sremoval from EU’s high-risk list

    The European Union’s (EU) announcement that Nigeria has been removed from its list of high-risk jurisdictions for money laundering and terrorism financing underscores the success of the Central Bank of Nigeria’s (CBN) reforms. It highlights growing transparency, stronger compliance in the financial sector, and effective implementation of Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) measures, reports Assistant Editor COLLINS NWEZE

    Nigeria’s exit from the EU’s High-risk List is expected to enhance global trust and partnership for the domestic economy. It is also an indication that Nigeria’s financial sector has experienced major transformation in recent years, following reforms in the sector. From exchange rate unification, increasing regulatory guidance, transparency in the forex market operations, enhanced surveillance in financial flows to the economy.

    A large part of these reforms and policy implementations have brought significant benefits to the economy. A remarkable gain was the recent European Union (EU), removal of Nigeria from its list of high-risk jurisdictions for money laundering and terrorism financing, alongside South Africa and four other African countries.

    The move was generally seen by analysts as providing a further fillip to Nigeria’s economic prospects. A statement published on the European Commission’s website said: “The European Commission, in its assessment, concluded that Nigeria has significantly strengthened the effectiveness of its AML/CFT regime and satisfactorily addressed the technical and strategic deficiencies highlighted by the FATF site, the move reflects decisions taken by the Financial Action Task Force (FATF) at its June and October 2025 plenaries, where several countries were removed from the list of “Jurisdictions under Increased Monitoring,” commonly referred to as the grey-list.

    The statement also said that the move means that enhanced due diligence requirements applied to transactions involving Nigeria and other delisted countries will be lifted from January 29, 2026, subject to procedural approval by the European Parliament and the Council. Analysts note that like its removal the FATF grey-list, Nigeria’s removal from the EU high-risk list also has significant economic and financial implications for the country.

    The fact remains that being classified as a high-risk jurisdiction often leads to higher transaction costs, delayed payments, restricted correspondent banking relationships, and reduced foreign investment. Nigeria was removed from the FATF grey-list in October last year after implementing a series of reforms aimed at strengthening its anti-money laundering and counter-terrorism financing (AML/CFT) regime.

    CBN Governor, Olayemi Cardoso, earlier said the deployment of the Electronic Forex Market Surveillance System (EFEMS), the shift to a single, market-determined foreign exchange rate regime, and enhanced risk-based banking supervision – underscore CBN’s track record of reform delivery. They have strengthened Nigeria’s capacity to absorb external shocks, from volatile oil prices to shifts in credit rating sentiment.

    “In 2026, we will deepen engagement with stakeholders, strengthen collaboration with other regulators and international partners, and foster responsible innovation across the financial system. We will continue to provide forward guidance, protect the integrity of our financial markets, leverage technology and AI to improve decision‑making, and build institutional capacity to support an evolving and resilient financial system,” he said.

    Reforms’ contributions to high-risk exit

    On assumption of office, the apex bank leadership led by Cardoso swung into action, dismantling the roadblocks and opaqueness in the financial system that put Nigerian on the EU list. From reforms in the bureau de change operations, which falls within the other financial sector segment of the economy, to the increase in surveillance and supervision of the deposit money banks, the CBN left no stone unturned to ensure that Nigeria exits the grey list.

    Part of the compliance records include Nigeria’s lenders being able to identify the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner, such that they become satisfied that beneficial owner in every transaction is known. As required by the law, the Nigeria’s financial institutions are also able to understand the ownership and control structure of their customers, obtain information on the purpose and intended nature of the business relationship and conduct due diligence on the business relationship. They equally ensured that scrutiny of transactions are undertaken throughout the course of every banking relationship.

    President, Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogubunka, described Nigeria’s exit from the EU list as an excellent development, for the country. He praised the CBN’s efforts at ensuring that Nigeria is no longer burdened by the grey list challenges, following its exit. He said: “It opens new approach and opportunities in Nigeria banks and customers dealings with international financial institutions. It shows that Nigeria’s financial system is safe for payments and other transactions. It is worth celebrating by all Nigerians,” he said. Ogubunka advised that government should do more to ensure that Nigeria does not relapse, or return into the list by continuing to do things right.

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    More views from stakeholders

    Reacting to the country’s removal from the FATF grey list in a statement it issued at the time, the CBN said the move recognised “significant improvements in Nigeria’s regulatory, supervisory, and enforcement frameworks, particularly in combating money laundering, terrorist financing, and proliferation financing.”

    It also added that the development “marks an important milestone in the country’s continuing efforts to strengthen financial system integrity, transparency, and international confidence.” The statement identified key reforms assessed by the FATF and the Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA), FATF’s regional assessment body.

    These include: Strengthened oversight of financial institutions through updated AML/ CFT regulations, risk-based supervision, and fit and-proper assessments; expansion of compliance reporting and monitoring across remittance channels, Bureaux De Change, and fintech platforms to improve traceability and transparency; enhanced inter-agency data sharing and enforcement coordination between the CBN, the Nigerian Financial Intelligence Unit (NFIU), the Economic and Financial Crimes Commission ( EFCC), and law-enforcement bodies and implementation of market governance tools, including the Foreign Exchange Code (FX Code) and Electronic Foreign Exchange Matching System (EFEMS).

    Furthermore, the statement said: “Nigeria’s removal from the grey list will yield tangible benefits for businesses and households alike including – lowering compliance costs, improving access to international finance, and making cross-border transactions faster and more affordable. In time, these gains will translate into smoother trade settlements, quicker remittance inflows, and even more predictable access to foreign exchange – enhancing livelihoods, supporting enterprise growth, and deepening financial inclusion.

    “The FATF decision reinforces the broader restoration of global confidence in Nigeria’s economic management. Recent international assessments underscore this momentum, with Moody’s and Fitch upgrading Nigeria’s ratings outlook on the back of stronger external balances, credible policy execution, and renewed monetary-policy credibility.”

    It also quoted Cardoso as saying: “The FATF’s decision to remove Nigeria from the grey list is a strong affirmation of our reform trajectory and the growing integrity of our financial system.

    “It reflects a clear policy direction and the coordinated efforts of key national institutions working together to deliver sustainable, standards-based reforms. Our priority now is to consolidate these gains, ensuring that compliance, innovation, and trust continue to advance hand in hand to reinforce financial stability and strengthen Nigeria’s global credibility.”

    Also, the CBN and Bank of Angola Memorandum of Understanding (MOU), signed late 2025, represents a major step to strengthen financial sector regulations and fight money laundering. Cardoso, who signed on behalf of the CBN alongside the Governor of the Central Bank of Angola, Manuel Antonio Tiago Diaz, noted that the MoU aligns with Africa’s broader goals of economic integration and financial stability. Both apex bank leaders said the partnership marks a critical development between the two institutions in their efforts to deepen bilateral cooperation and technical exchange.

    Both institutions are by the MoU expected to establish a bilateral forum for the reciprocal exchange and sharing of technical assistance between the authorities to enhance capacity in the execution of their respective Central Bank functions. They are also expected to cooperate and collaborate in the cross-border supervision of authorized institutions and exchange of cybersecurity information between them.

    According to them, the institutions are to partner on licensing, supervision, resolution planning and implementation of resolution measures for cross-border financial establishments. They are also to ensure transparent and smooth periodic exchange of information as well as define procedures for exchange of information. The cooperation will also extend to exchange control, financial markets and foreign reserves management, currency management and economic research.

    The partnership further extends to payment, clearing and settlement systems management, financial sector development, banking supervision and regulation as well as Anti-Money Laundering and Countering the Financing of Terrorism. Both central bank leaders said it is their hope that the outcome of the MoU implementation will be a win-win for both parties.

    Cost of grey list to economy grey-listing of Nigeria carried a significant cost translating to more than $30 billion in potential investments. Cardoso said: “Nigeria’s grey-listing carried a significant cost: countries in this category typically experience a 7.6 per cent of Gross Domestic Product (GDP) drop in capital inflows in the first year, for Nigeria, that translates to more than USD $30 billion in potential investment.  Exiting the list therefore signals a major restoration of confidence and eases compliance frictions for correspondent banks.”

    Cardoso said the global financial community has welcomed Nigeria’s exit, noting improved access to international finance and smoother cross‑border payments. He explained that one of the most significant achievements this year was Nigeria’s exit from the FATF grey list.

    “This milestone was the result of a coordinated national effort led by the Federal Government, with critical contributions from the Central Bank of Nigeria, the Ministry of Justice, the NFIU, the EFCC, and our regional partners. Through stronger supervision, improved reporting standards, enhanced intelligence‑sharing, and governance tools such as the FX Code, we addressed the deficiencies identified by FATF during its on‑site assessment,” he said.

    X-ray on economy

     In the Global Economic Prospects report, the World Bank upgraded Nigeria’s economic growth forecast for 2026 to 4.4 per cent, from the 3.7 per cent projection it had announced for the country in June 2025. The report said: “Growth in Nigeria is forecast to strengthen to 4.4 per cent in both 2026 and 2027—the fastest pace in over a decade. This further firming of growth is anticipated to be underpinned by a continued expansion in services and a rebound in agricultural output, with a modest acceleration in non-oil industry.

    “Economic reforms, including in the tax system, along with continued prudent monetary policy, are expected to continue supporting activity. They are also expected to improve investor sentiment and reduce inflation further. Higher oil output is expected to offset lower international oil prices this year, helping to boost fiscal revenues and strengthen the external balance.”

    The apex bank appeared to have set the ball rolling in terms of forecasting positive economic outlooks for the country, when in its macroeconomic outlook for 2026, released last month, it made optimistic projections for the nation’s economy. The apex bank stated: “The year 2026 presents a realistic window of opportunity for macroeconomic stabilisation. The Nigerian economy is expected to continue expanding, with growth projected at 4.49 per cent in 2026. The projection is hinged on continued gains from broad-based structural reforms and a gradually easing monetary policy stance.”

  • Tackling oil price shocks with economic diversification, FX reforms

    Tackling oil price shocks with economic diversification, FX reforms

    Nigeria’s economic diversification project is gaining ground. Oil is now accounting for a smaller share of the Gross Domestic Product (GDP), 33 per cent of government revenue, and 51 per cent of exports. With oil now a smaller share of GDP and fiscal revenue, a sharp oil-price decline is being cushioned by the flexible foreign exchange (FX) regime, rising non-oil exports, and growing services trade. The deployment of the Electronic Forex Market Surveillance System, shift to a single, market-determined exchange rate regime, and enhanced risk-based banking are expanding Nigeria’s capacity to absorb external shocks and diversify away from oil, reports Assistant Editor COLLINS NWEZE.

    After nearly a decade in which real Gross Domestic Product (GDP) growth averaged about two per cent, the economic reforms initiated by the Federal Government have begun to restore momentum and confidence in Nigeria’s broader macroeconomic environment. In the second quarter of 2025, the economy expanded by 4.23 per cent—the strongest growth in four years—driven by improvements in telecommunications, financial services, and oil production.

    The introduction of the Nigerian Foreign Exchange Code has established clear rules for transparency, ethics, governance and fair dealing among authorised dealers. The deployment of the Electronic Foreign Exchange Management System (EFEMS) system, powered by Bloomberg BMatch, has equally transformed FX trading through mandatory order submission, real‑time regulatory visibility, and enhanced price discovery. Together, these reforms have reduced opacity and manipulation, and restored discipline to the market. The naira now trades within a narrow, stable range. The once‑substantial gap between the official and parallel markets has shrunk to under two per cent, down from over 60 per cent.

    Foreign capital inflows reached US$20.98 billion in the first 10 months of 2025, a 70 per cent increase over total inflows for 2024 and a 428 per cent surge compared to the US$3.9 billion recorded in 2023, reflecting a clear resurgence in investor confidence. Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, explained that naira now trades within a narrow, stable range. The huge gap between the official and parallel markets has shrunk to under two per cent, from over 60 per cent. For him, macroeconomic indicators show that Nigeria is more resilient to external shocks today than at any point in her recent history.

    For instance, Nigeria’s external sector strengthened decisively in 2025, with the current account balance rising over 85 per cent to US$5.28 billion in Q2, up from US$2.85 billion in Q1. Bolstering our external buffers, foreign reserves reached US$46.7 billion by mid-November, the highest in nearly seven years, providing over 10 months of forward import cover and significantly enhancing the economy’s resilience.

    Cardoso explained that what is most important here is that Nigeria’s FX reserves are being rebuilt organically, not by borrowing, but through improved market functioning, stronger non‑oil exports, and robust capital inflows. “While oil production improved modestly to an average of 1.45–1.52 million barrels per day in 2025, the truly encouraging development is the strong performance of non-oil exports. Supported by ongoing reforms and greater exchange-rate flexibility, non-oil exports have grown by more than 18 per cent year-on-year, reflecting rising competitiveness under a truly market-driven FX framework,” he said.

    He disclosed that as with foreign investor inflows, diaspora remittances have also strengthened with confidence returning to official channels following enhancements in transparency, settlement efficiency, and reporting. “Remittances increased by approximately 12 per cent this year, and we expect this momentum to continue as the Non-Resident BVN, launched earlier this year, becomes more widely adopted in 2026.”

    Flexible exchange rate to be sustained

     The CBN boss said the apex bank is committed to maintaining the current flexible exchange‑rate framework that allows the naira to act as a shock absorber while limiting excessive volatility. “To strengthen this framework further, we will shortly be unveiling the revised FX Manual to expand market participation and tighten documentation standards, enhance EFEMS surveillance, and ensure consistent implementation to avoid any possibility of policy reversal. Recent assessments by rating agencies have provided significant external validation of Nigeria’s reform trajectory,” he said.

    Already, Fitch, Moody’s, and Standard & Poor’s have all acknowledged the positive impact of Nigeria’s reforms, from stronger reserves to improved fiscal discipline and greater FX transparency. Across all three agencies, the direction is consistent: fundamentals are strengthening, reform credibility is rising, and Nigeria’s risk profile is improving. “Fitch upgraded Nigeria from B- to B (stable), recognising our commitment to orthodox policies including FX reform, monetary tightening, and ending deficit monetisation.” Moody’s also raised its rating from Caa1 to B3 in May, citing improved fundamentals and a stronger outlook. And just this November, S&P affirmed B-/B and revised its outlook to positive, underscoring sustained reform momentum, rising reserves, and enhanced macroeconomic resilience.

    Moody’s has also further concluded its periodic review and while headlines may highlight risks, as rating agencies are mandated to do, the substance of the report reaffirms ongoing improvements, including stronger fiscal metrics and deeper diversification. “These endorsements of Nigeria’s policy direction have translated directly into improved borrowing terms, increased investment inflows, and enhanced credibility. Underscoring this progress, Nigeria this month successfully raised US$2.35 billion through a Eurobond issuance, attracting US$13 billion in orders, the largest in the nation’s history,” he said.

    Major policy shifts lifting economy

    Prof. Abiodun Adedipe, founder and Chief Consultant of B. Adedipe Associates Limited (BAA Consult), listed major policy shifts yielding positive results for the economy. He said that the CBN has eliminated  strange arbitraging and round-tripping opportunity through the forex market reforms; through petrol subsidy removal, the Federal Government removed crippling annual waste of US$10.7 billion and created environment for competition; bank recapitalisation is creating stronger and more capable banks to fund US$1 trillion economy while fiscal consolidation is plugging leakages, deploying technology and making government agencies more accountable and expanding fiscal space at sub-national.

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    Continuing, Adedipe said the real game changer remains the tax reforms, capable of igniting regional competition (the secret behind Chinese economic renaissance) while the Nigerian Education Loan Fund, Consumer Credit Corporation, recapitalised Bank of Agriculture, National Credit Guarantee Company Ltd, Single digit interest rate mortgage loans are major steps that should be taken to support sustainable economic growth.

    Support for domestic economy

    Adedipe said that Nigeria’s economy is supported by large, youthful and rapidly growing population (estimated at 237.53 million in July 2025 and sixth largest in the world, median age at 18.1 years). The country, he said, also benefits from rapid urbanisation with 54.28 per cent in December 2023, up from 46.12 per cent in 2013 and 51.96 per cent in 2020, deepening internet penetration which is at 48.15 per cent in April 2025, up from 45.57 per cent in August 2023 and 31.48 per cent in December 2018.

    Nigeria’s tele-density is at 79.65 per cent in May 2025, from 76.08 per cent in December 2024 and 102.97 per cent in Dec 2023, due to data cleanup at end of April 2024. “On global internet users, Nigeria with 123 million ranks 11th and 7th with over 84 per cent on mobile devices. Local oil refining continues to expand and prospects of new refineries, manufacturing is reviving and there is expanding interest in non-oil exports. Improvement in infrastructure will begin to positively impact the cost of doing business,” he said. He added that sustained deep reforms will enhance global competitiveness and Ease of Doing Business, plug leakages and shrink the space for economic rent.

    Fiscal‑monetary coordination

    The CBN explained that monetary reform cannot be effective in a vacuum. Alignment with fiscal policy has strengthened Nigeria’s macro stability and yielded tangible results including reduced domestic borrowing costs, improved liquidity conditions, and more predictable fiscal operations.

    For instance, the discontinuation of direct deficit financing signals one prong in our commitment to discipline. “This stance is unequivocal as there will be no return to the practice of financing fiscal deficits by the Central Bank. In parallel, the fiscal authorities have embarked on key institutional reforms – including the implementation of a Revenue Optimisation (RevOp) framework, the establishment of a new National Revenue Agency, and upgrades to the Treasury Single Account (TSA) – to strengthen revenue mobilisation and public financial management.

    “As we transition towards a full‑fledged inflation‑targeting framework, this partnership will deepen, ensuring fiscal and monetary policies reinforce each other in delivering durable price stability,” Cardoso said.

    Oil/gas output, revenue position

    The Nigerian National Petroleum Company Limited (NNPC Ltd) reported a significant surge in revenue, hitting N5.08 trillion in October 2025, up from N4.27 trillion recorded in September. The figures are contained in the company’s Monthly Report Summary for October 2025. According to the report, NNPC Ltd’s profit after tax (PAT) rose sharply to N447 billion in October, compared to N216 billion in September, stronger operational efficiency, improved market conditions, and enhanced cost optimisation strategies deployed by the national oil company.

    The report shows that production hit 6,997 million standard cubic feet per day (mmscf/d) in October, up from 6,284 mmscf/d in September. Gas sales, reported on an M-2 basis, climbed to 4,713 mmscf/d, marking a significant increase from 3,443 mmscf/d recorded in the previous month. Crude oil production experienced a slight dip, falling to 1.58 million barrels of oil per day (mmbopd) in October from 1.61 mmbopd in September. NNPC Ltd also stated that it will continue to sustain industry-wide collaboration and drive production recovery initiatives.

    Buffers against oil prices fall

    Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said global oil prices have dropped significantly, now hovering just above $63 per barrel while the naira exchanges at N1,445/$ at the official window. The Wall Street Journal’s grim forecast that Brent crude could fall below $50 per barrel by the end of 2025 only deepens the urgency for strategic policy responses. To strengthen economic buffers and sustain FX inflows, the CBN has proactively initiated strong measures aimed at cushioning the domestic economy against the looming oil price shock and ensuring sustainable economic development.

    Nigeria’s 2025 budget is squeezed by assumption of oil production of two million barrels per day and an oil price of $75 a barrel. At a benchmark of $75 per barrel and a production capacity of two million barrels per day (mbpd), Nigeria’s oil revenues would fall given the present oil price which is below budget benchmark. Such a shortfall could push the fiscal deficit to between six and seven per cent of Gross Domestic Product (GDP), potentially fuelling inflationary pressures and weakening macroeconomic stability. Among these are policies to boost Nigeria’s non-oil export potential, strengthen backward integration to reduce dependence on imported goods, and streamline diaspora dollar remittances to enhance foreign exchange inflows.

    Drawing from China’s economic strategy, the apex bank said Nigeria’s competitive exchange rate can drive export-led growth. To harness this potential, businesses are expected to adopt export-oriented strategies by targeting sectors with strong export potential such as agriculture, manufacturing and creative industries; implement import-substitution models by strengthening domestic production capabilities and reducing reliance on costly imports; and focus on value addition by shifting from exporting raw materials to processed goods, thereby boosting foreign exchange earnings.

    Cardoso said Nigeria’s creative sector has potential to attract $25 billion annually to the economy, highlighting the untapped opportunities in Nigeria’s expanding creative sector, including music, film, crafts and digital exports. He urged businesses to explore international markets, digital platforms, and global tours to increase dollar revenue inflows. The CBN boss also recently advised telecom companies to reduce their dependence on foreign imports by producing key components of their inputs locally. The backward integration proposal for the telecom industry comes at a time the real sector is in dire need of sustainable growth. The CBN boss gave insights on what the economy stands to gain from backward integration in the telecoms sector.

    Discouraging foreign services import

    Speaking in Abuja during a visit by the Airtel Africa management team led by Group CEO Sunil Taldar, the CBN Governor underscored the importance of boosting local production to ease pressure on the dollar, generate employment and strengthen the national economy. Cardoso emphasised the urgent need to domestically manufacture key telecom inputs—such as SIM cards, cables and towers—that are currently being imported in large volumes. He highlighted that the CBN has taken deliberate steps to stabilise the foreign exchange market, strengthen the naira, and attract investor confidence. With these foundations now in place, he urged telecommunications companies to embrace backward integration as a strategic imperative.

    In response, the Airtel Africa CEO commended the CBN’s reform efforts and voiced strong support for local production, noting that such a shift would ultimately yield long-term benefits for the telecommunications industry. He also reaffirmed Airtel’s commitment to expanding financial inclusion across Nigeria through innovative technology solutions.

    Research Head, Cowry Asset Management Limited, Charles Abuede, said the CBN governor’s call was to discourage the importation of foreign services into Nigeria, especially when efforts can be made to develop such services locally. “The high demand for foreign exchange by telecom operators has further pressured the naira due to increased demand for the dollar. However, with adequate infrastructure development and a conducive operating environment facilitated by regulators, these challenges can be mitigated,” he said. According to Abuede, “given Nigeria’s FX policies, illiquidity in the foreign exchange market and infrastructure deficits, I think increased investment in the telecom sector would enable operators to embrace backward integration. This would allow them to manufacture key components, such as SIM cards, locally. As a result, production costs could decline—provided the operating environment remains stable. This will improve profit margins and enhance both top-line and bottom-line growth in the long run.”

    Building resilient economy

    He said Nigeria’s economy has been fully restructured and is now resilient, with huge buffers against global risks. Cardoso said the naira has equally emerged as a competitive currency, with the economy witnessing positive trade balances and large businesses moving from imports to export of locally produced goods and commodities. According to him, the positive economic indicators have combined to create resilient and strong buffers, keeping the economy in great shapes.

    O n the impact of the trade tariffs on the domestic economy, the CBN boss said the tariffs are less of problems for the country. “And for us again, oil is basically the only commodity that was so exposed to the tariffs, and the impact of that was relatively modest. We now have a more competitive currency with the results that, for once, we have a situation where we have a positive balance of trade surplus, and we expect it to be six per cent in GDP for some time.

    “So basically, what is happening is a complete restructuring of the economy, where we are encouraging people to go into domestic production, and, of course, discouraging imports. And I think we were very fortunate, because a lot of the things that were needed to have been done, we did them much earlier, and as a result of that, we’re able to create resilience and buffers against potential shocks,” Cardoso stated.

    He explained further that oil was the oil commodity that was exposed to the trade tariffs, but the impact was equally modest. “So, and of course, in terms of anchoring expectations, we found that those who followed the Nigerian economy were fairly comfortable. And for us, again, oil is basically the only commodity that was so exposed, and the impact of that was relatively modest,” he said. Overall, oil prices may face further declines if OPEC+ decides to raise output. The alliance is expected to focus on reviving another sliver of production in December in a move that may amplify traders’ concerns about a global glut.

  • FX reforms, interest rate hike trigger Fitch Ratings credit upgrade

    FX reforms, interest rate hike trigger Fitch Ratings credit upgrade

    Global credit rating agency Fitch Ratings has upgraded Nigeria’s credit rating to B, citing a wave of economic reforms that have bolstered policy credibility and eased near-term threats to macroeconomic stability. At the heart of these reforms is the Central Bank of Nigeria’s (CBN) push to formalise foreign exchange activities and strengthen monetary policy transmission. This has been achieved through a mix of policy rate hikes, prudential measures and operational tools such as open market operations—marking a clear departure from years of financial repression, writes Assistant Editor COLLINS NWEZE.

    Fitch Ratings’ recent positive report on the Nigerian economy came as no surprise to stakeholders closely monitoring the bold economic reforms championed by the country’s monetary and fiscal authorities. From the unification of exchange rates to curb market arbitrage, to the rollout of an electronic FX matching platform and a new foreign exchange code aimed at enhancing transparency and efficiency, the Central Bank of Nigeria (CBN) has signalled a strong commitment to stabilising the currency. Coupled with a decisive shift towards monetary policy tightening to rein in inflation, these measures underscore the CBN’s drive toward sustainable economic growth and exchange rate stability.

    Already, the latest Fitch rating moved Nigeria’s long-term foreign-currency issuer default rating (IDR) from negative to stable, meaning that the country stands a better chance of attracting foreign investment, borrow money on international markets at better interest rates, and boost investor confidence. Fitch also applauded government’s commitment to policy reforms implemented since its move to orthodox economic policies in June 2023, including exchange rate liberalisation, monetary policy tightening and steps to end deficit monetisation as well as fuel subsidies removal. “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 agency stated.

    Sustaining FX Code/ EFEMS implementation

    The apex bank recently took strategic step to enhance transparency and boost market confidence with the inauguration of the Nigeria Foreign Exchange Code (FX Code) in Abuja. The FX Code has so far ignited naira stability at both official and parallel markets. CBN Governor Olayemi Cardoso recently launched the FX Code, emphasising integrity, fairness, transparency, and efficiency as critical pillars for driving Nigeria’s economic growth and stability. He emphasized that the FX Code was built on six core principles: ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement processes. These principles, he explained, aligned with international standards while addressing the unique challenges within Nigeria’s foreign exchange market.

    According to Cardoso, “The FX Code represents a decisive step forward, setting clear and enforceable standards for ethical conduct, transparency and good governance in our foreign exchange market. The era of opaque practices is over. The FX Code marks a new era of compliance and accountability. Under the CBN Act 2007 and BOFIA Act 2020, violations will be met with penalties and administrative actions.”

    The CBN has stated that while every effort has been made to ensure that the FX Code comprehensively addresses various aspects of market conduct and practice, it is not intended to be exhaustive. Governor Cardoso also noted that the journey towards market reform is already yielding results. He stated, “The year 2024 was marked by structural reforms that sought to return the naira to a freely determined market price and ease volatility as several distortions were removed from the market.”

    Beyond the foreign exchange market, the FX Code forms part of the CBN’s renewed focus on compliance across the financial sector. Its six guiding principles, alongside 52 sub-principles, were designed to become the benchmark for conduct across all participating institutions. Issued as a guideline for the foreign exchange market, the FX Code is backed by the authority of the CBN Act of 2007 and the Banks and Other Financial Institutions Act (BOFIA) of 2020. These legislative instruments empower the CBN to establish and enforce directives regarding the standards financial institutions must follow in conducting foreign exchange business in Nigeria. The FX Code, therefore, serves as an official directive that all market participants are expected to observe in their operations.

    Besides FX Code, the apex bank also introduced the Electronic Foreign Exchange Matching System (EFEMS), which has proven effective in other economies in enhancing the functionality of the foreign exchange market. The EFEMS was meant to check forex market distortions, eliminate speculative activities and instil transparency. The EFEMS, which is commonplace in developed and developing markets, offers real-time information on currency rates, trading volumes and market activity.

    Understanding monetary policy decisions

    In February, the apex bank retained its benchmark lending rate at 27.50 per cent, marking the first time it has opted to maintain the rate in almost three years. CBN had been persistent in raising the lending rates since March 2022 when the rate stood at 11.5 per cent. The Monetary Policy Committee (MPC) of the bank stated that its unanimous decision was influenced by recent macroeconomic developments, which it noted with satisfaction. These include stability in the foreign exchange market, leading to an appreciation of the exchange rate, and the gradual moderation in petrol prices, both of which are expected to positively impact price dynamics in the near to medium term. The benchmark rate is the standard interest rate set by central banks, used to guide lending rates and influence economic activities, inflation, and financial stability. The central bank also retained the asymmetric corridor around the MPR at +500 to -100 basis points.

    Cardoso said the committee voted to retain the Cash Reserve Ratio (CRR) at 50 per cent for commercial banks, while maintaining the CRR of merchant banks at 16 per cent. The committee also voted to retain the liquidity ratio at 30 per cent. The CBN has continued tightening monetary policy to curb inflation, implementing a series of interest rate hikes throughout 2024. These decisions were aimed at stabilising the economy amid persistent price pressures. In 2024, the bank raised rates six times, delivering a cumulative increase of 875 basis points.  “The committee highlighted the benefits of the improvements in the external sector to exchange rate stability, including the convergence of race between the Nigeria foreign exchange market and the Bureau to change and urge the bank to relent, not to relent in its effort to boost market liquidity,” Cardoso said.

    Other highlights of the ratings upgrade

    Fitch expects the macroeconomic policy stance to support the move to lower inflation and sustain improvements in the foreign exchange (FX) market’s operation, though it will likely remain much higher than rating peers. It also expects “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.”

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    It added: “Greater formalisation of FX activity including the Central Bank of Nigeria’s (CBN) recent introduction of an electronic FX matching platform and a new FX code to enhance transparency and efficiency, along with monetary policy tightening, has led to a greater rise in FX liquidity and general stability in the FX market after a 40% depreciation in 2024, closing the spread between the official and parallel exchange rates.

    “Net official FX inflows through the CBN and autonomous sources rose by about 89% in 4Q24, compared to an 8% rise in 4Q23. We expect continued formalisation of FX activity to support the exchange rate, although we anticipate modest depreciation in the short term. The CBN has tightened monetary conditions through a combination of policy rate hikes to 27.5% (up 875bp since February 2024) and use of prudential and operational tools such as open market operations (at rates closely aligned to the MPR) to strengthen monetary policy transmission after years of financial repression.”

    Reacting to the Fitch rating, Oladele Adeoye, Chief Rating Officer at DataPro, a Nigerian credit rating agency, said it was a positive development “in all ways.” Adeoye said it would boost investors’ confidence in Nigeria’s Eurobond as people would readily subscribe whenever it is issued. “Good rating also implies lower cost of fund. Of course, there will be inflow of foreign currency into the economy and this will give further room for the CBN to support the local currency and strengthen exchange rate,” he said.

    On how the government can improve on this, Adeoye said: “Nigeria must increase productivity that can boost export and lower import. This will enhance the external reserve and improve public finance. “We need to continue to improve our revenue base, and this includes both oil and non-oil revenue.”

    Registrar/Chief Executive Officer, Nigeria Institute of Credit Administration (NICA) Chartered, Prof. Chris Onalo, said the national body for credit management said the Fitch rating “means a lot.” He said he could not agree less with the agency’s rating. “It is solid, it is stable, it is progressing, and it has a future outlook,” Onalo said.

    On further steps government can take on the economy, he said: “The government should focus on expanding the economy. In other words, all-inclusive economic activities. “The government should fix the infrastructural problem, because that will stimulate future ratings. It should also reduce the cost of doing business drastically. And then fix electricity and clamp down on the local insecurity, like the insurgency is becoming a thing of the past now, but pocket pickers, people that break into offices, and you can arrest that by creating avenues for job, wider job availability for people that are regarded as forgotten miscreants. The Fitch Ratings shows that the country has a stable outlook in terms of investment and that can have a positive effect on our foreign direct investments.”

    Other analysts described the Fitch rating as “a significant step forward in restoring investor confidence and economic stability.” According to them, the development means an improvement in Nigeria’s creditworthiness, which could open up new opportunities for the country across several sectors. “A ‘B’ rating from Fitch is a step up, which is generally a positive sign. It means Fitch believes Nigeria’s creditworthiness has improved,” Dr. Balogun said. He explained that the upgrade could enhance Nigeria’s attractiveness to international investors. “A better credit rating makes Nigeria a more attractive place for investors. This could lead to increased foreign investment in various sectors,” he noted.

    One of the major implications of the improved rating is that Nigeria may now be able to borrow at lower interest rates. The Fitch Ratings is also expected to allow the federal government to finance projects more efficiently and manage its debt burden more effectively and further send a signal to the global community that Nigeria’s economy is on a more stable footing, which could in turn boost international confidence in the country’s financial environment. Additionally, the new rating could offer Nigeria better access to international financial markets, thereby increasing funding options for both the public and private sectors.

    With positive Fitch Ratings which would lead to potentially lower borrowing costs, the government could invest more in infrastructure development—roads, bridges and power plants—thereby attracting both local and international capital. Such investments would support government’s continued drive for infrastructure development and sustainable growth for the economy.