Nigeria’s improving currency position and easing inflation have strengthened its economic outlook, but renewed energy price pressures, high government borrowing costs and shallow domestic capital markets threaten to undermine the gains, S&P Global Ratings has warned.
In its latest report titled _African Markets Quarterly Highlights: Inflation and Financing Remain Key Risks_, S&P identified Nigeria among African economies facing renewed inflationary pressures from tighter diesel supplies, higher food prices and elevated international financing costs.
The report highlights a growing contradiction in Nigeria’s economic outlook: while recent reforms have improved some macroeconomic indicators, the underlying structure of the economy remains vulnerable to external shocks and expensive domestic financing.
Diesel Surge Threatens Food Inflation
One of the immediate concerns is the resurgence of energy-related inflation.
S&P’s analysis shows that diesel prices in Nigeria recorded one of the largest increases among the African economies reviewed between December 2025 and September 2026.
The agency attributed the pressure to tightening global diesel supplies, estimating that approximately two million barrels per day of diesel export supply from the Middle East and Russia had been lost since July 2026.
S&P warned that an average 18 per cent increase in diesel prices across African markets could feed into food and consumer inflation, eroding household purchasing power.
Diesel remains a critical fuel for Nigerian manufacturers, logistics operators, telecoms firms and small businesses that run generators to supplement unreliable electricity supply.
Higher diesel prices therefore extend beyond transportation costs, potentially increasing production expenses, distribution costs and consumer prices.
Naira Gains, But Inflation Risk Remains
According to S&P, the naira appreciated approximately one per cent against the dollar during the period covered by its analysis, making Nigeria one of the few African economies to record currency gains despite renewed geopolitical tensions and global market volatility.
However, the agency warned that the broader inflation outlook remains exposed to imported energy costs and exchange rate pressures.
It noted that headline inflation had eased to 14.63 per cent in September 2026, but that the benefit to households was limited by rising transport and food costs.
Expensive Borrowing Squeezes Government
The bigger concern is the cost of government finance.
S&P projects that interest payments will absorb 22.2 per cent of general government revenue in 2026, with net government debt estimated at 49.4 per cent of gross domestic product and a fiscal deficit of 4.4 per cent of GDP.
African sovereign dollar bond yields have risen to 8.9 per cent, approaching their three-year average of 9.3 per cent, which raises refinancing costs for governments seeking funds in international markets.
The agency also pointed to shallow domestic markets, with gross domestic savings at 27 per cent of GDP but private sector credit at just 15 per cent and non-bank financial assets at only 7.7 per cent of GDP.
S&P argued that addressing Africa’s financing requirements will require more than additional government borrowing.
Rating And Outlook
Its sovereign dashboard places Nigeria’s long-term foreign currency rating at ‘B’ with a stable outlook, improved from ‘B-‘ with a positive outlook, following Nigeria’s first S&P upgrade since 2012 in May 2026.
The upgrade was driven by three years of sustained structural reforms, the 2023 foreign exchange liberalisation, higher oil production and domestic refining capacity, notably the 650,000-barrel-per-day Dangote Refinery.
S&P said further progress will depend on sustaining macroeconomic and fiscal improvements.
The agency also projected that West Africa’s working-age population will increase significantly over the next decade, adding approximately 100 million workers to the regional labour force, underscoring the urgency of creating productive jobs.
The report explains why headline GDP growth of 4.43 per cent in the second quarter of 2026 and lower inflation have not eased household costs for many Nigerians.
