Despite renewed investor confidence in Nigeria’s economic reforms, the country’s external debt servicing is expected to rise significantly in 2025, according to Fitch Ratings.

In a recent report titled “Fitch Upgrades Nigeria to ‘B’; Outlook Stable,” the agency projected that debt servicing would increase next year, even as it acknowledged improvements in macroeconomic management following major policy shifts made in mid-2023.

Fitch attributed its decision to upgrade Nigeria’s rating to progress made in liberalizing the exchange rate, tightening monetary policy, halting deficit financing through the central bank, and eliminating fuel subsidies.

“These have improved policy coherence and credibility and reduced economic distortions and near-term risks to macroeconomic stability,” the agency said, adding that the reforms enhanced Nigeria’s resilience amid both domestic and global challenges.

“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.

The Stable Outlook, Fitch explained, reflects expectations that Nigeria will maintain a consistent macroeconomic policy direction, especially in managing inflation and the foreign exchange market.

Inflation remains a key concern, however.

The Central Bank of Nigeria has raised policy rates to 27.5%, an 875 basis point increase since February 2024, and adopted market-aligned open market operations to strengthen policy transmission.

Fitch projects that inflation, which stood at 23.2% year-on-year in February 2025 under a rebased CPI, will average 22% this year and 20% in 2026, well above the median of 4.3% for similarly rated countries.

Fitch raised particular concerns over Nigeria’s external debt service obligations, projecting that payments would reach $5.2 billion in 2025.

Although gross official reserves climbed to $41 billion at the end of 2024, up from $32 billion in mid-2024, they have since dropped to $38 billion due largely to increased debt service costs.

At current levels, reserves cover roughly five months of current external payments.

Since President Bola Tinubu took office, Nigeria has secured $7.45 billion in new loan commitments from the World Bank across 11 approved projects.

Data from the Debt Management Office shows that the World Bank is Nigeria’s largest external creditor, holding $17.32 billion of the country’s foreign debt as of Q3 2024.

Of this, $16.5 billion is owed to the International Development Association (IDA), making Nigeria the largest borrower from the IDA in Africa and the third-largest globally.

As of September 30, 2024, Nigeria’s national debt had climbed to N142 trillion, an increase of N8.02 trillion in just one quarter.

The spike is largely attributed to naira devaluation, which has sharply inflated the cost of repaying foreign-denominated debt.