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Fitch revises Nigeria’s outlook from negative to stable

Global credit rating agency, Fitch Ratings, has revised its outlook on Nigeria’s Long- Term Foreign-Currency Issuer Default Rating (IDR) to stable from negative and affirmed the IDR at ‘B’. In a statement yesterday, Fitch said, “The revision of the outlook reflects a decrease in the level of uncertainty surrounding the impact of the global pandemic shock on the Nigerian economy. Oil prices have stabilised, global funding conditions have eased and domestic restrictions on movement have started to be relaxed.

“Nigeria has navigated external liquidity pressures from the shock through partial exchange rate adjustment combined with de facto capital flow management measures and foreign-currency (FC) restrictions, while disbursement of external official loans has supported the level of international reserves. While external vulnerability persists from currency overvaluation and a possibly large FC demand backlog, this is adequately captured by the ‘B’ rating, in our view.” According to the agency, the ‘B’ rating also reflects, “weak fiscal revenues, comparatively low governance and development indicators, high dependence on hydrocarbons and a track record of subdued growth and high inflation.”

It, however, stated that: “These rating weaknesses are balanced against the large size of Nigeria’s economy, low general government (GG) debt relative to GDP, small FC indebtedness of the sovereign and a comparatively developed financial system with a deep domestic debt market.”

Still, Fitch noted that the collapse in oil prices will pressure already overstretched state and local governments’ resources, making it likely that they would require financial assistance from the Federal Government.

“Recurrent delays to electricity tariff hikes towards cost-recovery levels will raise needs for further support to the ailing electricity sector. The exposure of banks to the oil sector is sizeable and the likely deterioration in asset quality following the oil price crash could increase the need for government support to the sector.

Contingent liabilities for the sovereign stem from the debt of the Asset Management Corporation of Nigeria of 3.3% of GDP at end-2018,” the agency stated. It projected that while the Nigerian economy will contract by 3 per cent in 2020, GDP will likely grow by 1.3% in 2021 and 3% in 2022, “assuming an easing of disruptions from the health crisis, a slow recovery in oil prices and adherence to OPEC+ production caps.” Fitch noted that although Nigeria’s mediumterm growth outlook is subdued, “progress on the elaboration of the longstalled Petroleum Governance Bill could lead to revival in investment in the hydrocarbon sector.”

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