Moody’s warns of oil price shock and Inflation threats amid credit upgrade

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Global credit rating agency Moody’s Ratings has warned that the Central Bank of Nigeria’s ability to maintain a stable naira without draining reserves may be impacted by declining oil prices and stubborn inflation. 

Despite upgrading Nigeria’s long-term foreign currency and local currency issuer ratings to B3 from Caa1 and changing the outlook to stable from positive, Moody’s noted that the country’s economic outlook remains vulnerable to external shocks.

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“The upgrade reflects significant improvements in Nigeria’s external and fiscal positions,” Moody’s stated. “A more flexible exchange rate has greatly bolstered external reserves. Concurrently, the removal of oil subsidies has alleviated budgetary spending pressures.” The agency added that tax reforms have started yielding results, and although vulnerabilities related to oil prices and the exchange rate remain, Nigeria’s more robust buffers support a B3 rating.

However, Moody’s warned that a decline in global oil prices and persistence of inflationary pressures could test the resilience of the current monetary framework and derail some of the recent macroeconomic gains. “The stable outlook means we expect Nigeria’s recent progress on external and fiscal fronts to continue, though at a slower pace if oil prices fall,” the agency stated.

Moody’s projected that oil prices may drop by 16% in 2025, which could undermine the CBN’s ability to maintain a stable naira without draining reserves. As of June 1, 2025, the price of crude in the global market was about $63 per barrel, lower than the benchmark of $75 per barrel on which the 2025 budget is hinged.

Analysts at Afrinvest also expressed concerns about the impact of declining oil prices on Nigeria’s economy. “Given that crude oil revenue is projected to deliver 47.7% of the ₦40.9tn budgeted revenue for 2025, we estimate deficits could exceed N17.0tn in 2025, pushing total debt stock to N180.0tn (c. 60.0% of GDP),” they stated.

Inflation remains a key concern, with Nigeria’s inflation rate moderating to 24.5% in January 2025 following a rebasing of the Consumer Price Index methodology. The CBN has adopted a tighter monetary stance to combat inflation, raising the benchmark interest rate by 875 basis points in 2024 to 27.5%. 

Despite these challenges, Moody’s maintained a stable outlook on Nigeria, expressing confidence that recent reforms have laid the groundwork for improved economic governance and debt sustainability

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