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S&P affirms Nigeria’s ‘B-/B’ ratings with stable outlook

Leading credit rating agency, S&P Global Ratings (previously Standard & Poor’s), has affirmed its ‘B-/B’ long and short-term sovereign credit ratings on Nigeria, with a stable outlook. The rating agency also affirmed its long and short-term Nigeria national scale ratings at ‘ngBBB/ ngA-2’.

In its latest report on Nigeria obtained by New Telegraph yesterday, S&P stated: “The stable outlook reflects that despite the deterioration in economic, fiscal, and external performance, funding from official lenders will partially alleviate pressures on Nigeria’s FX reserves and support commercial debt-repayment capacity over the next 12 months.”

The credit rating agency said it could raise its ratings if Nigeria experiences significantly stronger economic performance than it currently expects, or if the country’s external financing pressures are contained and fiscal deficits reduce faster than it is projecting. It further stated that: “We could lower the ratings if we saw increasing risks to Nigeria’s capacity to repay commercial obligations, either because of declining external liquidity or a continued reduction in fiscal flexibility.

This could occur, for instance, if we see significantly higher fiscal deficits or debt-servicing needs, as well as sharply reduced FX reserves.” S&P added that Nigeria’s real Gross Domestic Product (GDP) growth is expected to contract by 3.8 per cent in 2020, due to the impact of the coronavirus pandemic and low oil prices, before growing by 1.9 per cent in 2021 and averaging 2.1 per cent in 2021-2023.

It said: “Nigeria’s economy has been hit hard by two shocks – the coronavirus pandemic and the low oil price environment. Given that Nigeria’s reliance on oil revenue is still high, with over 85% of goods exports and about half of fiscal revenues coming from hydrocarbons, current low oil prices and volumes in 2020 (with OPEC production quotas capping production) will impact its external and fiscal positions.

“The partial lockdown between March and June, alongside ongoing pandemic- related pressures, will also weigh on the economy. Furthermore, the manufacturing sector depends heavily on FX for component imports and is suffering an FX shortage.
“We expect real GDP growth to contract by 3.8% in 2020 before growing by a still-lacklustre 1.9% in 2021 and averaging 2.1% in 2021-2023. In line with our oil price assumptions, our forecast of relatively low oil prices and volumes in 2020, and consequent low export revenues, will likely see the current account deficit increasing to 4.3% of GDP this year, despite a fall in imports. “We expect current account deficits to moderate over the medium term and average 0.5% in 2021-2023.

External financing gaps could emerge if economic assumptions weaken or if funding from official lenders is not as forthcoming as anticipated.” In addition, the agency said: “On the fiscal side, lower oil-related revenue will keep general government (federal, states, and local government combined) fiscal deficits elevated at 5.5% of GDP this year, delaying planned gradual consolidation, before averaging 4.3% in 2021-2023.” According to S&P, Federal Government’s cost cutting measures, such as the removal of fuel subsidies and plans to raise taxes are not expected to be enough to compensate for lost oil revenue in 2020.

It noted that while relatively low FX inflows occasioned by low levels of oil receipts are presenting challenges for the Central Bank of Nigeria (CBN) in terms of exchange-rate and FX-reserve policies, Nigeria’s FX reserves are likely to decline “relatively slowly to nearly $32 billion by end-2020, but averaging $35.5 billion in 2021-2023 as the oil price rebounds.”




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