Fitch affirms Nigeria at ‘B+’, says general elections could weaken progress

Fitch Ratings, a global credit rating agency, affirmed Nigeria’s long-term foreign-currency issuer default rating at ‘B+’ with a negative outlook, even as the 2019 general elections could further weaken progress on reform agenda.

In a statement issued on Thursday, the credit rating agency said, “The ‘B+’ rating reflects Nigeria’s position as Africa’s largest economy and most populous country, its net external creditor position, and its well-developed domestic debt markets, balanced against a high level of hydrocarbon dependence, low levels of domestic revenue mobilisation and GDP per capita, and low rankings on governance and business environment indicators.”

It said the negative outlook reflects uncertainty about the sustainability of the economic growth momentum as the impact of earlier shocks eases and progress on addressing high interest service ratios.

Nigeria’s economy plunged into recession in 2016 due to drop in the prices of crude oil in the global market, it emerged from recession in 2017 as the crude oil production volume rose to 2.1mbpd and foreign exchange availability boosted the non oil sector including Agriculture.

Fitch expects that these trends will continue, but notes that tight monetary conditions will continue to weigh on Nigeria’s growth outlook.

The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) had raised its main lending rate by 200 basis points to a record high of 14 per cent since July 2016 which has significantly slowed down the economy’s growth rate.

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According to the agency, “The government’s inability to substantially increase domestic revenue mobilisation remains a key rating weakness. Non-oil revenue increased slightly in 2017, to 3.4% of GDP and will continue growing slowly as a result of new revenue measures and efforts to increase the tax base, but any increase comes from a very low base.”

However, Fitch expressed concern over the possible implications of the 2019 elections, saying the elections could complicate security challenges in the country which could negatively affect government revenue.

“The general election scheduled for February 2019 could further weaken progress on the reform agenda and aggravate ongoing security challenges.

“Most importantly, any flare-up of insurgent activity in the oil-producing Niger Delta would hit fiscal and external revenue. In 2016 and 2017, increased insurgent activity caused a fall in oil production to a low of 1.7mbpd, ” the statement read.

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