..It’s not a downgrade but a wake-up call – FG
By Emma Ujah & Babajide Komolafe, with agency report
Standard & Poor’s rating agency has said that Nigeria may have its credit rating cut due to impact of lower crude oil prices and political uncertainty on its economy. S&P said it is reviewing Nigeria for a possible downgrade, indicating there’s more than a 50 percent chance for the country to lose its BB- rating, or three steps below investment grade. The move came one day after it cut a group of oil producing countries including Kazakhstan, Bahrain and Venezuela and lowered the outlook for Saudi Arabia to negative.
S&P’s analysts led by Ravi Bhatia in a statement, said”The decline in oil prices has a significant impact on the outlook for Nigeria’s external position, while political risks also remain significant.”
A 53 percent decline in oil prices since June is squeezing Nigeria’s economy, which relies on commodities for more than 90 percent of its exports and 70 percent of the government revenue. The country’s bonds fell and the currency weakened to a record on Monday as escalating violence by the Islamist group Boko Haram in the northeastern region prompted an electoral commission to push back national elections scheduled for Feb. 14 by six weeks.
S&P said Nigeria’s current account, the broadest measure of trade, may turn into a deficit equal to 1.8 percent of gross domestic product between this year and 2017, from a surplus of 3.3 percent as previously expected.
It’s a wake-up call – FG
The Federal government has however said that the Standard & Poor’s latest assessment of Nigeria which retains the country’s sovereign rating at BB- with a negative watch did not downgrade the country’s rating but a wake-up call to work harder.
In a statement yesterday, Spokesperson of the Minister of State for Finance, Mr Paul Nwabuikwu said, “previously, it was BB-.with a negative outlook. This means that the ratings agency has adjusted its rating slightly by placing the country on negative watch because of the pressure of falling oil prices on the economy as well as political risk.
“Thus, Nigeria has not been downgraded but the country clearly needs to work harder to actualize its recently announced policy response to the current economic challenges”.
He argued that other oil producing countries, like Saudi Arabia, have also been put on negative watch, while a number of others, including Kazakhstan, Bahrain and Oman were downgraded outright.
“It is important to note that in spite of the serious challenges arising from the sharp fall in oil prices, Nigeria is doing quite well compared to some other oil producing countries. For example, while the economies of Russia and Venezuela are projected to contract and experience negative growth this year, Nigeria’s GDP has been projected by the IMF to grow by 4.8% which is quite robust by global standards.
“Overall, there are two broad implications. First, the economy, despite many challenges, retains key strengths. Second, we have to keep working harder to continue to turn these strengths into real value for the country and its citizens”, he said.