Fitch Ratings has affirmed Nigeria’s long-term foreign currency Issuer Default Rating (IDR) at ‘B+’ with a “negative outlook”.
The international rating agency in a statement explained that Nigeria’s rating was supported by its large and diversified economy, significant oil reserves, its net external creditor position, low external debt service ratio and large domestic debt market.
These, it stated, were balanced against relatively low per capita gross domestic product (GDP), an exceptionally narrow fiscal revenue base and a weak business environment.
According to Fitch, the negative outlook reflected the downside risks from rising government indebtedness, the possibility of a reversal of recent improvements in foreign currency (FX) liquidity, and a faltering of the still fragile economic recovery.
Fitch had forecast that the Nigerian economy would grow by 1.5 per cent in 2017 and 2.6 per cent in 2018, following the country’s first contraction in 25 years in 2016.
GDP growth continued to contract in 1Q17, but by less than in the previous four quarters.
“The recovery will be driven mainly by increased FX availability to the non-oil economy and fiscal stimulus, as higher oil revenue and various funding initiatives have raised the government’s ability to execute on capital spending plans.
“However, the FX market remains far from fully transparent, domestic liquidity has also become a constraint, and the growth forecast is subject to downside risks,” it noted.
The agency pointed out that at 16.1 per cent in July, inflation remained high, just as it projected that the country’s Consumer Price Index (CPI) was expected to decline to 11 per cent in 2019.
Crude oil production rose to 1.8 million barrels per day (mbpd) in July 2017, from 1.5 mbpd in December 2016, driven by the lifting of the force majeure at the Forcados export terminal and the completion of maintenance at both Forcados and the Bonga oil field.
Nevertheless, Fitch revised down its expectation of full-year average production to 1.8 mbpd, which is about equal to 2016 production.
Fitch noted that the imposition of an OPEC quota might cap Nigeria’s crude production at 1.8mbpd, which could limit the oil sector’s upside potential.
However, as it excludes condensate production, the quota should not affect Nigeria’s near-term production potential, it stated.
In April 2017, the Central Bank of Nigeria (CBN) introduced the Investors & Exporters (I&E) FX window and gradually introduced further measures to improve dollar liquidity.
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