17 October 2013, Lagos – Global rating agency, Fitch Ratings, has disclosed that Nigeria’s chances of a rating upgrade are constrained by weak governance, low per capita income and vulnerability to oil price volatility.
However, Fitch, in its latest report, affirmed Nigeria’s long-term foreign and local currency, Issuer Default Ratings, IDR, and senior unsecured bond ratings at ‘BB-’ and ‘BB’ respectively, with a stable outlook.Fitch also affirmed Nigeria’s short-term foreign currency IDR at ‘B’ and country ceiling at ‘BB-’.
The rating agency expressed concern that strong vested interests will make structural reform in Nigeria a continual struggle, especially with elections in 2015, adding that data weaknesses hampered the monitoring of economic and fiscal performance and reform progress in the country.
On the factors that hindered Nigeria’s chances for a rating upgrade, Fitch noted that the country witnessed a sustained period of lower oil prices or oil production, coupled with an inappropriate policy response, which led to serious reserve loss and deterioration in the fiscal position.
On the positives, it said, “The stable outlook reflects the fact that in Fitch’s view, upside and downside risks are well balanced. The main factors that individually or collectively might lead to rating action are as follows: ‘Continuing structural reforms that brought faster, more diverse and inclusive growth and higher employment and per capita incomes; longer track record of low single-digit inflation; Improved external buffers, either in the ECA or the new Sovereign Wealth Fund (NSIA); Improved governance as reflected in World Bank and anti-corruption indicators”.
Fitch further stated that Nigeria’s current rating is driven by the resilience of its Gross Domestic Product, GDP, growth in the face of exogenous shocks, despite slowing to 6.4 per cent in first half 2013.
It said, “the non-oil economy has slowed but still grew by 7.9 per cent in 2012 and 7.6 per cent in the first half of 2013. Non-oil growth should pick-up in second half 2013 as normal weather has resumed and the authorities have responded to security problems.
“Reforms in the electricity and agriculture sectors could start to boost potential growth. Inflation has been in single digits all year – the lowest in five years and the longest stretch of single digit inflation since 2008. Policy rates are unchanged.
“The Central Bank of Nigeria, CBN, has the twin aims of achieving single-digit inflation and maintaining exchange rate stability. Public finances remain comfortable.
“Fitch estimates a general government deficit of around 1.8 percent of GDP this year and next. Both oil and non-oil revenues are under-budget and the Excess Crude Account, ECA, has been tapped to compensate.
“Capital spending also remains under budget. The draft 2014 budget plans ambitious fiscal consolidation, with lower oil production and benchmark oil prices and lower spending than the 2013 budget.
“However, Fitch expects that oil production will likely fall short again, and the final budget that emerges from the National Assembly is likely to be more expansionary.
“Nevertheless, Fitch expects government debt to remain stable at just over 20 per cent of GDP, barely half that of peers. Nigeria’s sovereign and overall external balance sheets, current account surplus, debt service ratio and external liquidity are all stronger than ‘BB’ category medians.”