While the last assessment of Nigeria by two international rating agencies, Moody’s and Fitch remains unchanged, a third agency – Standard & Poor’s – has downgraded the country’s rating by a notch mainly because of the fall in international crude prices.
It will be recalled that Fitch Ratings had published a rating of BB- with a stable outlook for Nigeria onDecember 7, 2014
Moody’s Investors Service also published a similarly positive Ba3 rating (same as BB-) for Nigeria on March 10, 2015.
However, Standard & Poor’s, which released its latest assessment of Nigeria’s credit rating earlier today, has downgraded the country’s rating from BB- to B+ on the grounds that “the decline in oil prices in the last seven months has significantly affected Nigeria’s external position and external vulnerability.”
The agency described the Federal Government’s fiscal programme in response to the crisis in the global oil market positively as “proactive and ambitious”. S&P however identified the coming general elections and the “potential under performance on oil production” as possible negative factors.
Nigeria is one of many oil producing countries downgraded by S&P due to the impact of the steep drop in global oil prices on their economies.
In fact, the rating agency has downgraded virtually all oil dependent economies including Russia, Bahrain, Congo (Brazzaville), Kazakhstan, Oman, Venezuela, Angola and Gabon. S&P also assigned a Negative Outlook to Azerbaijan and Saudi Arabia.
S&P said it also based its decision on Nigeria on “significant” political risk arising from the coming elections as well as the impact of insurgency in the North East.
On the positive side, S&P puts annual real GDP growth at 5% “in spite of the troubles in the northeast and the fall in oil prices”. This is slightly higher than the 4.8% projected by the IMF and is quite robust by current global standards.
Even more significant, S&P also noted that GDP growth is being driven by the non-oil sectors of the economy. This confirms recent statements by the Coordinating Minister for the Economy and Minister of Finance, Dr Ngozi Okonjo-Iweala that the country is entering a post-oil phase in its economic development. The rise in tax collection by the Federal Inland Revenue Service last year by N110b over and above the normal target is one example of this.
S&P also commended “A series of reforms, including in agriculture, and the rapid growth of sectors such as telecoms and financial services, have contributed to non-oil growth momentum.”
The agency also stated that the continued stable outlook “reflects our view that Nigeria’s non-oil economy will continue to support GDP growth and that external and fiscal balances will not increase significantly above our current expectations”.
