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Fitch affirms Nigeria’s ‘BB-‘ Ratings assigns Nigeria negative outlook

By on September 27, 2015

Fitch Ratings has affirmed Nigeria’s long-term foreign and local currency Issuer Default Rating (IDRs) at ‘BB-‘ and ‘BB’ respectively.

However, the global ratings agency stated that its outlook on Nigeria’s long-term IDRs are Negative, as against the stable outlook it had assigned the country last year. The issue ratings on Nigeria’s senior unsecured foreign-currency bonds were also affirmed at ‘BB-‘.

The ratings by Fitch comes exactly seven days after another global ratings agency, Standard & Poor’s (S&P) rated Nigeria B+ and assigned a stable outlook to the country.
Continuing, Fitch explained in a statement yesterday that Nigeria’s Country Ceiling was affirmed at ‘BB-‘ and the Short-term foreign-currency IDR at ‘B’.

It emphasised that the affirmation of Nigeria’s ratings was based on the fact that the political uncertainty that preceded the 2015 elections had since subsided and power had transitioned peacefully to the administration of President Muhammadu Buhari, who was sworn-in in May.

“This is the first democratic transition of power to an opposition party in Nigeria, and highlights the strengthening of political institutions. President Buhari has prioritised improving security, reducing corruption, and fostering economic growth and job creation. Progress is being made in tackling Boko Haram, although the group retains a significant presence in parts of the North-east.

“The extended absence of a cabinet has caused delays in implementing economic policy, which has dented credibility at a time of significant challenges posed by lower oil prices, and significant uncertainty remains, particularly around the currency. To support the exchange rate, the central bank introduced measures that made foreign exchange unavailable for certain activities and were cited in the decision to remove Nigeria from the JP Morgan global benchmark bond index.

“Planned tax increases under the previous administration have not been implemented and the bulk of the fiscal adjustment burden has been absorbed by cutting capital spending,” Fitch stated.

Furthermore, it noted that the composition of a new cabinet in Nigeria will provide an important guide to the policy direction of the new government.

“Economic growth has slowed sharply in 2015, although it is set to rebound in 2016 and remains robust relative to peers. Lower oil production, election-related uncertainty, fiscal consolidation and restrictions on access to foreign exchange held back real gross domestic product (GDP) growth to 3.1 per cent in first half 2015, compared with an average of 5.6 per cent over the previous five years.

“With uncertainty over economic policy expected to ease and continued dynamism within the private sector, we forecast real GDP growth to rebound to an average of five per cent over 2016 and 2017. We forecast the general government deficit to widen this year, but at 3.1 per cent of GDP it will be lower than ‘BB’-rated peers.

“A currency devaluation in February and strengthened efforts to boost tax collection administration are supporting revenues. Some state and local governments have run up arrears, but these are being addressed by a rescheduling programme that restructures about USD1.6bn in short-term bank loans into 20-year federal government bonds. The restructuring will result in significant interest rate savings to state and local governments and cause only a small increase in the sovereign’s debt burden,” it added.
Fitch also pointed out that there has been no progress in rebuilding savings buffers in the country, with the excess crude account at $2.2 billion in mid-September 2015, adding that deficit financing will push up debt.
Nonetheless, it noted that with a large and diverse local investor base, Nigeria’s ejection from the JP Morgan benchmark global bond index in September will not cause financing strains.

“Administrative restrictions have allowed a modest rebound in foreign exchange reserves, to $31 billion (4.5 months of current external payments) at end-August compared with a peer median of four months. With lower oil prices pulling the current account into deficit, rebuilding reserves, which fell by 30 per cent in the year to June 2015, will pose challenges in the absence of an exchange rate adjustment.

 

[ThisDay]