International credit rating agency, Fitch Ratings, has revised Nigeria’s long-term rating outlook to ‘negative’ from ‘stable’ while maintaining the country’s foreign and local currency ratings at ‘BB-’ and ‘BB’, respectively. Fitch explained in a statement on Monday that it does not anticipate developments that could lead to an upgrade for Nigeria currently. Reasons for the negative revision, according to Fitch, include a medium political uncertainty heightened in the context of a tightly contested presidential election and potential transition is- sues.
The agency also “does not expect” Nigeria’s savings to be rebuilt significantly over the next two years, adding that the country’s buffers have been “eroded significantly” and are “well below” 2008/09 levels. With only $2 billion in the Excess Crude Account and a 3.8-month cover from the foreign reserves at the end of 2014, Nigeria’s high dependence on oil revenues will cause the external position to deteriorate even with rapid policy responses, said Paul Gamble, director at Fitch Ratings in London. Africa’s largest economy has initiated a number of policy responses to the negative oil price shocks since June 2014 including naira devaluation, boosting collection and consolidation of government revenues into the treasury single account (TSA), revised budget cuts and so on.
Ngozi Okonjo-Iweala, coordinating minister for the economy and minister of finance, said in a recent interview that the objective of TSA is to get as much internal revenue generated and to avoid leakages. The negative revision by Fitch is the second by an international rating agency after S&P down- graded Nigeria to ‘B+’ from ‘BB-’, earlier this month. However, Okonjo- Iweala believes the S&P revision is a “strong mark and credit to Nigeria”, which described the management of the economy in relation to oil prices as “proactive and ambitious.” Fitch’s outlook revision has come three days behind its planned re- lease on the eve of the presidential elections, but the agency considered the elections as a material event enough to deviate from its release calendar.
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In affirming the BB- and B+ issuer ratings, Fitch ratings acknowledged Nigeria’s rapid policy response to lower oil prices, noting that exchange rate distortions have been eliminated, revenue-raising and cost- cutting measures have been introduced and the debt level is “well man- aged”. Fitch assumes ongoing structural reforms will continue but with some degree of uncertainty given that economic policy “has not featured prominently” in election campaigns. Overall, Fitch predicts economic performance to weaken, even as non-oil growth will be hit by the devaluation of the naira and election-related un- certainty.
