- The Global Ratings Agency S&P in a research update has downgraded Nigeria from stable outlook to negative
- Weak growth, huge public debt, and external pressures are some of the factors affecting Nigeria’s creditworthiness
The Global Ratings Agency S&P in a research update published on February 28, 2020, has downgraded Nigeria from a stable outlook to negative. S&P reported that the revision of the outlook for Nigeria was based on several issues plaguing its economy. Weak growth, huge public debt, and external pressures are some of the factors that have affected Nigeria’s creditworthiness.
According to reports, Nigeria’s foreign-exchange reserve levels fell from $45 billion at mid-year 2019 to $36.5 billion in February 2020. Moreover, foreign-exchange reserves are derived from non-resident holders of The Central Bank of Nigeria (CBN) bills, which are considered as vulnerable to a change in investor sentiment. Also, the late passage of the budget in 2019 has led to increased financing from the central bank through overdraft facilities.
The rating Agency lauded higher non-resident participation in domestic markets driven by the more-open, liberalized exchange-rate system since April 2017, as well as relatively attractive returns on the CBN’s bills. It also appreciated the prompt passage of the 2020 budget offering the government an opportunity to raise external funding through commercial issuances or concessional funding. S&P also projected a rise in export revenue from new oil and gas fields and a fall in Imports due to the current crackdown on smuggling of goods across Nigeria’s borders with neighboring countries, as well as import substitution measures. Due to these factors, the current account could creep back into a surplus averaging close to 1.8% of GDP over 2020-2023.
The negative rating by S&P could lead to a costlier debt round if Nigeria proceed with its Eurobonds. Foreign investors also may demand a higher yield on the back of a higher risk rating due to this downgrade. The Nigerian stock market, which relies heavily on foreign investment inflows to boost demand and prices of stocks may also take a hit.
