Election-year inflation threatens Nigeria’s reform push, S&P says after upgrade

S&P Global Ratings upgraded Nigeria’s sovereign credit rating by one notch on Friday, rewarding three years of difficult structural reforms under President Bola Tinubu, but the ratings agency immediately flagged that surging inflation and an approaching election cycle could undo much of that progress.

S&P raised Nigeria’s long-term foreign and local currency ratings to ‘B’ from ‘B-,’ reflecting what it described as sustained improvements in the country’s external position, fiscal revenue base, and exchange-rate framework since Tinubu scrapped fuel subsidies and liberalised the naira in mid-2023. The outlook was assigned stable.

“Following three years of sustained structural reforms, Nigeria’s creditworthiness has improved,” the agency said in its rating action statement. “The liberalisation of the exchange rate has bolstered access to foreign currency and enabled a market-driven exchange-rate environment, supporting investor and consumer confidence.”

Yet the upgrade arrived wrapped in caution. With general elections less than a year away and the Middle East conflict driving global crude prices sharply higher, S&P warned that rising fuel costs at Nigerian petrol stations are feeding directly into inflation and widening the budget deficit, a volatile combination in a country where 50 percent of the population lives in poverty and 31 million people face food insecurity.

Nigeria’s inflation battle appeared to be easing until conflict in the Middle East closed the Strait of Hormuz in February, causing S&P to revise its Brent crude price assumption to $100 per barrel from $85, a dramatic shift that rippled straight through to pump prices in Lagos and Abuja.

S&P now estimates inflation will average 17.7% this year before falling below 10% by 2028, a forecast that assumes no policy reversal. The agency was direct about the political risk embedded in that assumption: “This poses risks to continued reform momentum — especially relating to sizable fuel subsidies, which were removed in 2023 if social unrest rises due to high and rising living costs.”

The government has publicly ruled out reinstating fuel subsidies, which historically consumed roughly 2 percent of GDP and drained the country’s foreign currency reserves. But the political arithmetic grows more complex by the month. Tinubu’s administration is already preparing for a 2027 election campaign, and S&P expects infrastructure spending and election-related expenditures to widen the general government deficit to over 4 percent of GDP on average during 2026 and 2027.

“We anticipate an increased focus on infrastructure investment and election-related expenditure in the run-up to the 2027 elections,” S&P said, adding that it does not expect those pressures to cause a “prolonged material deviation” in fiscal results, provided capital budget execution, historically weak, remains disciplined.

Perhaps the most striking metric in S&P’s report is the trajectory of Nigeria’s debt-to-revenue ratio, which the agency forecasts will fall to 338 percent in 2026 from a staggering 500 percent in 2023. Interest expenditure as a share of revenue is projected to average 21.4 percent through 2029, down from 39 percent three years ago, a compression that reflects both reform momentum and the recent GDP rebasing exercise that inflated headline economic figures by 35 percent.

Still, S&P acknowledged that Nigeria’s revenue base “remains among the lowest of rated sovereigns,” with an unemployment rate of roughly 30 percent under the pre-2023 methodology and only about 10 percent of workers in formal wage employment.

The naira, trading at around N1,360 to the dollar in May, has recovered modestly from its 2025 lows but remains highly sensitive to shifts in oil revenues and capital flows.

For S&P to raise Nigeria’s rating further, the agency said it would need to see significantly improved fiscal outcomes, either through consolidation or structurally higher revenue, and a meaningful reduction in the country’s still-sizable external financing needs. The window for achieving that, analysts noted, may narrow considerably once campaign season gets fully underway.

“The approaching 2027 election is likely to coincide with a slowdown in reform implementation,” S&P said. Whether Abuja can hold the line until then remains the central question facing Africa’s most populous nation.