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Nigeria’s Long-Term Foreign-Currency Issuer Default Rating was on Monday reviewed downward from B+ to a ‘B’ status with a negative outlook by Fitch Ratings.
The decision reflects ongoing pressure on external reserves due to a slump in the oil prices and the COVID-19 pandemic, Fitch said.
Nigeria’s foreign reserves declined by 9.4 per cent year-on-year, a cumulative fall of 22.5 per cent since a peak was recorded in mid-July 2019. Meanwhile, the exchange rate has appreciated by more than 30 percent since 2016, driven mainly by rising inflation which averaged 13.3 per cent between 2017 and 2019 due to rigid nominal exchange rates.
Excessive external pressure, uncertain monetary and exchange rate policies, as well as the absence of reliable fiscal buffers, raise the risks of disruption to Nigeria’s macroeconomic adjustment, said Fitch in the report.
The shock is also expected to raise the government’s debt and interest payment-to-revenue ratios which are already high and lead to a “renewed economic recession.”
In addition to a new recession, Fitch expects Nigeria’s government to witness a further weakening of its fiscal revenue due to the oil price slump and the near-shutdown of economic activities in the country.
The general government deficit was projected to widen by 5.8 per cent of GDP in 2020, up from 3.8 percent in 2019.
“The plunge in international oil prices, which we assume will average of $35/barrel in 2020 after $64.1/barrel in 2019, highlights Nigeria’s high dependence on the oil sector, with hydrocarbon revenues representing 57 per cent of current-account receipts and nearly half of fiscal revenue over the last three years,” the report read.
