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S&P lowers Nigeria’s ratings on oil slump, elections

By on March 22, 2015

Global credit ratings agency, Standard and Poor’s, has lowered its long-term sovereign credit ratings on Nigeria from ‘BB-’ to ‘B+’ due to the impact of the global fall in crude oil prices and surging political tensions on the country.

S&P on Friday said the decline in oil prices in the last seven months had significantly affected Nigeria’s external position and external vulnerability.

It lowered its long-term foreign and local currency sovereign ratings on Nigeria to ‘B+’ from ‘BB-’, while affirming the short-term ratings at ‘B’.

The agency rating said, “We expect that the 2010-2014surplus on the current account will turn to an average deficit of 1.8 per cent of Gross Domestic Product in 2015-2018.

“We also believe that political risks are significant. The tightly contested general elections may pose risks to Nigeria’s external position and the implementation of what we view as the government’s ambitious fiscal consolidation plans, while the Boko Haram group continues to disrupt the northeast.

“In addition, we removed these ratings from CreditWatch, where they were placed with negative implications on Feb. 10, 2015. The outlook on the long-term ratings is stable.”

According to S&P, the stable outlook reflects the view that Nigeria’s non-oil economy will continue to support the GDP growth and that external and fiscal balances will not increase significantly above its current expectations.

The rating agency also lowered its long-term national scale rating on Nigeria to ‘ngA’ from ‘ngAA-’, while affirming the short-term national scale rating at ‘ngA-1’.

It said the exchange rate and monetary policy could continue to come under pressure due to the fall in oil prices, political risks, or changes in investor risk appetite.

S&P forecast that Nigeria’s general government debt stock (consolidating debt at all levels of government) would grow by 2.5 per cent of the GDP per year on average in 2015-2018.

It said the real GDP growth was down from its forecast of the average GDP growth of 6.2 per cent for 2015-2017 that it published in September 2014.

The agency further said, “The Nigerian banking sector may face asset quality, profitability, and potentially liquidity pressures in the next year. The sources of weakness are likely to be around oil loans, utilities, manufacturing, and the US dollar exposures. In our view, mid-tier banks are likely to be the most at risk.

“We could lower the ratings if Nigeria’s external and fiscal positions deteriorate beyond our current expectations, or if Nigeria’s policymaking and institutional stability weaken significantly.

S&P, however, said it could consider an upgrade if external factors improved considerably (for example due to a sharp or prolonged rebound in the oil price), or if Nigeria’s external and fiscal balances performed well above its expectations.

 

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