Global rating agency, Fitch has affirmed Nigeria's long-term foreign and local currency Issuer Default Ratings (IDR) at 'BB-' and 'BB', respectively. The agency also maintained that Nigeria’s outlook remains stable.
Fitch in a statement yesterday also affirmed the issue ratings on the country’s senior unsecured foreign and local currency bonds at 'BB-' and 'BB', respectively.
In addition, the agency with dual headquarters in New York and London also placed Nigeria's short-term foreign currency IDR at 'B' and Country Ceiling at 'BB-'.
Commenting on Nigeria’s rebased Gross Domestic Product (GDP) which saw estimates for 2013 hitting $509.9 billion from $285. 56 billion and the country emerging as the biggest economy in the continent, the agency said the exercise showed a more diversified economy, with the non-oil sector comprising 86 per cent of GDP and services now put at 52 per cent of GDP (previously 29%).
According to Fitch, as a result of the country’s new GDP figure, its sovereign and overall external balance sheets, current account surplus, debt service ratio and external liquidity are all stronger than the 'BB' category medians.
It explained that the rating reflected the fact that the foreign exchange market and Nigeria’s external reserves were stabilising after the shock that trailed the suspension of Sanusi Lamido Sanusi as the Central Bank of Nigeria (CBN) Governor in February.
It added: “Demand for forex in the official auction reverted to normal levels in March and CBN intervention in the interbank market has fallen away.
“The interbank naira/dollar rate has strengthened from its lows although it remains outside the upper limit of the N155 plus or minus three per cent band. Reserves rose in March, helped by an increase in the Excess Crude Account (ECA) fiscal buffer,” it added.
It pointed out that although the external reserves had fallen appreciably over the past year, they remained in line with 'BB' category peer medians at a Fitch projected 4.6 months current account payments at end 2014. This is however weaker than similarly rated oil exporters such as Angola and Gabon.
It added: “Fitch believes that as an institution, the CBN has been strengthened in recent years and should retain its autonomy over monetary and financial policy, notwithstanding the suspension of the governor.
“Oil production remains volatile but rose in first quarter of 2014 to an average 2.25mb/d, in line with the trailing 12-month average, and above the recent low of 2.1 million barrels per day in November/December 2013.
“Improved production and increased efforts to tackle pipeline vandalism and oil theft may help explain the increase in the ECA in March.
“The issue of corruption in the oil sector and lack of transparency in oil flows has gained heightened prominence this year and the President has agreed to a forensic audit of the flows between state-owned oil company NNPC and the budget.” Other factors supportive of the affirmation by Fitch included Nigeria's low debt burden, which after the recent GDP re-basing was just 12.6 per cent of GDP at end-2013 and well below medians throughout the rating scale.
Fitch's debt sustainability analysis also showed that the country’s debt ratio would remain well below the 'BB' median in any plausible scenario.
“Nigeria's ratings are constrained by weak governance, as measured by the World Bank, low per capita income, even after the 89 per cent uplift to 2013 GDP due to rebasing, and vulnerability of public finances and reserves to oil price volatility.
“Political noise has increased this year ahead of the February 2015 presidential and gubernatorial elections. The Boko Haram insurgency has also intensified this year, though is geographically contained,” it stated.
Fitch therefore called for accelerated structural reforms to bring faster, more inclusive growth and higher employment and per capita incomes, among others, so as to enhance the country’s rating.
However, it listed renewed pressure on reserves that further depletion of Nigeria's fiscal and external buffers, reversal of key structural reforms and serious deterioration in domestic security as factors that could lead to a downgrade.