March 11, 2020

Fitch Ratings signals downgrade of Nigeria’s sovereign rating

Fitch Ratings signals downgrade of Nigeria’s sovereign rating

By Babajide Komolafe

Fitch Ratings, Tuesday, said it may downgrade Nigeria’s sovereign rating to ‘Negative’ from ‘B+’ if ongoing efforts to defend the naira eats heavily into the nation’s external reserves in the face of a sustained decline in crude oil price.

The nation’s external reserves fell by 19.7 percent to $36.2 billion on Monday from $45.1billion on June 30th, 2019,      driven mostly by increased dollar sales by the Central Bank of Nigeria (CBN) in its bid to defend the naira.

This development prompted global rating agency, Standard and Poors, last month, to effect a downward revision in its outlook on Nigeria to ‘negative’ from ‘stable’,  while it affirmed the country’s long and short-term sovereign credit ratings at  ‘B/B’.

Earlier in December, 2019, Fitch Ratings    revised the outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘Negative’ from ‘Stable”, but affirmed the country’s sovereign credit rating    at ‘B+’.
However,  Fitch’s Middle East and Africa sovereign analyst, Jan Friederich, hinted that the ‘B+’ rating could be revised downward to ‘negative’.

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He dropped this hint yesterday in an interview with Reuters stressing that the recent sharp drop in crude oil price if sustained, could lead to further downgrade of the sovereign ratings of exporter countries with weaker finances and especially those with the added pressure of pegged exchange rates.

Noting that oil prices are likely to stay low for some time, he said the global rating company has set its eyes on some oil-exporting countries namely Saudi Arabia, Iraq and Oman to Nigeria and Angola.

“Countries that are in a somewhat vulnerable external position and have a fixed exchange rate are, of course, particularly vulnerable,” Friederich said.

On individual countries, he said Saudi Arabia’s financial reserves and its sovereign wealth fund provided a buffer but that there was not “infinite leeway” in the country’s A (stable) rating for the buffers to disappear.

A continued rise in government debt in Oman “would be a concern” he added, while Nigeria’s B+ (negative) rating could face problems if a “prolonged attempt” to defend the country’s currency peg ate heavily into its international reserves.

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