In a clear signal that international confidence in Nigeria’s ongoing economic reforms is growing, the globally respected rating agency, Fitch Ratings has revised the country’s Outlook to Stable from Negative.
Fitch also affirmed Nigeria’s long-term foreign currency Issuer Default Rating (IDR) at ‘BB-’ and Long-term local currency IDR at ‘BB’. The agency also affirmed the Short-term rating at ‘B’ and Country Ceiling at ‘BB’.
The upgrade is especially significant because Fitch Ratings had lowered Nigeria’s sovereign credit outlook to Negative last October from Stable, citing the depletion of its windfall oil savings and heightened political uncertainty ahead of elections at the time.
The ratings agency had also indicated that it would further lower its assessment of Nigeria’s economic prospects if the country did not follow through with post-election reforms to put the economy on a sustainable path. The latest review demonstrates that the agency believes that the country is on the right path.
Explaining the reasons behind the upward review, Victoria Kalema, a Director in the rating agency’s Sovereign Group stated that: “The revision of the Outlook on Nigeria’s ratings to Stable from Negative reflects an improved outlook for reforms following elections in April and the appointment of a strong economic team.“
In addition, tighter monetary policy and slightly better fiscal discipline have arrested the rapid pace of reserves decline seen in the first three quarters of 2010, which had prompted the Negative Outlook in October last year”.
She added that “The Stable Outlook anticipates continued reforms progress, a tighter budget for 2012, including progress towards scrapping the petroleum subsidy and making the Nigeria Sovereign Investment Authority, the sovereign wealth fund, operational.”
Other positive indicators, according to Fitch include:
Key planned regulatory reforms in the power and oil sector are moving ahead.
The reform will reduce foreign exchange and fiscal leakage and reduce pressure on Nigeria’s reserves, promote more efficient energy usage and spur downstream investment.
The planned reforms to the agriculture sector would improve output and productivity and increase rural incomes, with a huge medium- term positive impact on the economy, even if they are only partially implemented.
Overall, Fitch’s opinion is that “Nigeria’s key credit indicators – strong growth, low public debt and a strong external balance sheet continue to provide strong support to the rating.”