Fitch affirms Nigeria at ‘B+’, outlook negative
A global credit rating agency, Fitch Ratings, on Thursday affirmed Nigeria’s long-term foreign-currency issuer default rating at ‘B+’ with a negative outlook.
It said the ‘B+’ rating reflected Nigeria’s position as Africa’s largest economy and most populous country, its net external creditor position, and its well-developed domestic debt markets, balanced against a high level of hydrocarbon dependence, low levels of domestic revenue mobilisation and GDP per capita, and low rankings on governance and business environment indicators.
The negative outlook, according to a statement, reflects uncertainty about the sustainability of the economic growth momentum as the impact of earlier shocks eases and progress on addressing high interest service ratios.
Fitch forecasts the GDP growth to accelerate to 2.4 per cent in 2018 as the country continues to climb out of the oil price shock recession that characterised 2016 and the first quarter of 2017.
It noted that the growth turned positive in the second quarter of last year, and the recovery of oil production to 2.1 million barrels per day by the fourth quarter boosted oil sector output, adding that greater foreign exchange availability provided a lift to the non-oil export sectors, particularly agriculture.
“Fitch expects that these trends will continue, but notes that tight monetary conditions will continue to weigh on Nigeria’s growth outlook. Fitch forecasts 2019 growth to rise slightly to three per cent, compared with 4.8 per cent for the five years prior to 2016,” it said.
The rating agency noted that the Central Bank of Nigeria at its meeting in April held its monetary policy rate at 14 per cent, where it had been since July 2016.
“The need to support the naira and lingering inflation pressures mean that the Central Bank of Nigeria will ease monetary policy only gradually,” it added.
Fitch noted that the naira had fluctuated close to N360 per US dollar on the Investors and Exporters window since its introduction in April 2017, saying, “Given most forex activity is now handled on the I&E window, this implies a devaluation by 45 per cent since the start of the FX regime adjustments in June 2016.
“Together with higher oil prices and production, this has contributed to the convergence between the parallel market and the I&E rate. However, the forex market remains segmented and the continued use of exchange controls inhibit greater foreign-currency liquidity and capital inflows. In Fitch’s view, there is unlikely to be any further substantial change by the CBN to the existing FX rate regime before the 2019 elections.”
It said increasing oil receipts and import compression had buoyed Nigeria’s trade surplus and brought the current account surplus to an estimated 2.2 per cent of the GDP in 2017.
“Fitch expects that imports will begin to return to historical levels, especially as government capital expenditure increases, and the current account surplus will narrow in 2018.”
The agency noted that Nigeria’s reserves position had increased to a four-year high due to stronger oil receipts and considerable hard-currency bond placements.
Gross international reserves were $47.5bn, or eight months of current external payments, as of end-April.
Fitch said, “The government’s inability to substantially increase domestic revenue mobilisation remains a key rating weakness.”