Fitch Rating

Fitch Affirms Nigeria’s B+ Outlook

By Nse Anthony-Uko
International rating agency, Fitch Ratings has affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’ with a Negative Outlook that could turn positive with a revival of economic growth supported by the sustained implementation of coherent macroeconomic policies.

Fitch on Thursday said Nigeria’s ratings are supported by its large and diversified economy, significant oil reserves, its net external creditor position, low external debt service ratio and large domestic debt market. These, it said are balanced against relatively low per capita GDP, an exceptionally narrow fiscal revenue base and a weak business environment.

The Negative Outlook reflects the downside risks from rising government indebtedness, and the possibility of a reversal of recent improvements in foreign currency liquidity and a faltering of the still fragile economic recovery.

Fitch forecasts growth of 1.5 per cent in 2017 and 2.6 per cent in 2018, following Nigeria’s first contraction in 25 years in 2016. GDP growth continued to contract in first quarter of 2017, but by less than in the previous four quarters.

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Although the rating agency is maintaining a negative outlook, it said a reduction of the fiscal deficit and the maintenance of a manageable debt burden as well as increased confidence in the forex market or an increase in foreign exchange reserves to a level that reduces vulnerability to external shocks would see a review to positive outlook

The recovery of Nigeria’s economy it said will be driven mainly by increased forex availability to the non-oil economy and fiscal stimulus, as higher oil revenue and various funding initiatives have raised the government’s ability to execute on capital spending plans.

Fitch noted that forex market however “remains far from fully transparent, domestic liquidity has also become a constraint, and the growth forecast is subject to downside risks.” Inflation remains high at 16.1 per cent in July 2017, but Fitch projects it to decline to 11 per cent by 2019.

On the Investors and exporters forex window, Fitch said it believes that the I&E rate should now be considered the relevant exchange rate as most activity occurs on the window. In April 2017, the Central Bank of Nigeria (CBN) introduced the I&E currency window and gradually introduced further measures to improve the liquidity of this instrument.

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It also intervenes actively to support the currency while keeping domestic liquidity conditions tight. In addition, higher oil prices and increased portfolio and FDI inflows have enabled the CBN to increase its provision of forex liquidity to the market. As a result, the parallel exchange rate began to converge towards the I&E rate, currently at around N360 per dollar, and foreign currency liquidity shortages eased

Crude oil production rose to 1.8 million barrels per day (mbpd) in July 2017, from 1.5 mbpd in December 2016; the increase was driven by the lifting of force majeure at the Forcados export terminal and the completion of maintenance at both Forcados and the Bonga oil field. Fitch has revised down its expectation of full-year average production to 1.8 mbpd, which is about equal to 2016 production.

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