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Fitch Ratings: Nigeria’s economic fundamentals remain strong – Rewane

By on April 14, 2014

The stable outlook assigned to Nigeria’s long-term foreign and local currency Issuer Default Ratings (IDR) by Fitch Ratings on Friday has been defended by economists who described the latest report as a fair reflection of improvement in the nation’s economic fundamentals.
Global rating agency, Fitch had, in a statement on Friday, affirmed Nigeria’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BB-’ and ‘BB’, respectively. The agency also maintained that Nigeria’s outlook remains stable.

Fitch in a statement yesterday also affirmed the issue ratings on the country’s senior unsecured foreign and local currency bonds at ‘BB-’ and ‘BB’, respectively.
In addition, the agency also placed Nigeria’s short-term foreign currency IDR at ‘B’ and Country Ceiling at ‘BB-’.
The ratings, according to economic analysts represent the current position of the Nigerian economy, which they said had improved tremendously.

In an apparent repudiation of a recent negative ratings by another rating agency, Standards and Poor’s, Rewane who described the S&P rating as too aggressive, said unlike S&P report, Fitch ratings represents the true position of Nigeria’s economy.
A fortnight ago, Standard & Poor’s revised its outlook on Nigeria’s sovereign credit to negative from credit watch negative, citing continued infighting within the country’s ruling party which has heightened political and institutional risks.

However, Managing Director of Financial Derivatives Company Limited, Mr. Bismarck Rewane said some of the fears raised by S&P had been overtaken by events in the country.
He said, “My feeling is that S&P was too aggressive. The reason cited for their negative outlook was political infighting within the ruling political party whereas the reality today is that such infighting has seriously reduced.

“One will agree with Fitch Rating that the economic outlook look stable pre-election. There is no reason to downgrade the outlook. The reserve depletion has slowed down and in fact there were some accretion although it has started to deplete again; oil prices are held up and the fundamental economic variables are good especially if the policy continues to move in the right direction.”
According to Rewane, “There is every justification for the stable outlook. What Nigeria should be looking for is an improvement in the outlook from stable to favourable.”

He believes Nigeria has strong potentials which could be tapped for the improvement of the economy.
“Our potentials remain strong. There is no doubt about that but people don’t live on potential people live on actuals. To actualise these potentials, government needs to remove the constraints,” he said.

A banker, who pleaded anonymity told THISDAY that the latest ratings from Fitch is credible in view of the stability that has returned to the nation’s finance sector especially after the clearing of the new CBN Governor, Godwin Emefiele, by the Senate.

Commenting on Nigeria’s rebased Gross Domestic Product (GDP) which saw estimates for 2013 hitting $509.9 billion from $285.56 billion and the country emerging as the biggest economy on the continent, the agency said the exercise showed a more diversified economy, with the non-oil sector comprising 86 per cent of GDP and services now put at 52 per cent of GDP (previously 29 per cent).

According to Fitch, as a result of the country’s new GDP figure, its sovereign and overall external balance sheets, current account surplus, debt service ratio and external liquidity are all stronger than the ‘BB’ category medians.

The agency noted that the foreign exchange market and Nigeria’s external reserves were stabilising after the shock that trailed the suspension of Sanusi Lamido Sanusi as the Central Bank of Nigeria (CBN) Governor in February.
It added: “Demand for forex in the official auction reverted to normal levels in March and CBN intervention in the interbank market has fallen away.

“The interbank naira/dollar rate has strengthened from its lows although it remains outside the upper limit of the N155 plus or minus three per cent band. Reserves rose in March, helped by an increase in the Excess Crude Account (ECA) fiscal buffer,” it added.
It pointed out that although the external reserves had fallen appreciably over the past year, they remained in line with ‘BB’ category peer medians at a Fitch projected 4.6 months current account payments at end 2014. This is however weaker than similarly rated oil exporters such as Angola and Gabon.

It added: “Fitch believes that as an institution, the CBN has been strengthened in recent years and should retain its autonomy over monetary and financial policy, notwithstanding the suspension of the governor.

“Oil production remains volatile but rose in first quarter of 2014 to an average 2.25mb/d, in line with the trailing 12-month average, and above the recent low of 2.1 million barrels per day in November/December 2013.
“Improved production and increased efforts to tackle pipeline vandalism and oil theft may help explain the increase in the ECA in March.

“The issue of corruption in the oil sector and lack of transparency in oil flows has gained heightened prominence this year and the President has agreed to a forensic audit of the flows between state-owned oil company NNPC and the budget.” Other factors supportive of the affirmation by Fitch included Nigeria’s low debt burden, which after the recent GDP re-basing was just 12.6 per cent of GDP at end-2013 and well below medians throughout the rating scale.
Fitch’s debt sustainability analysis also showed that the country’s debt ratio would remain well below the ‘BB’ median in any plausible scenario.

 

 

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