Paul Wallace Abuja
NIGERIA’S credit rating was downgraded by Standard & Poor’s (S&P) on Friday because of falling oil prices and rising political risks before delayed elections due this week in the West African country.
The foreign and local currency long-term rating was cut one level to B+, four levels below investment grade. The outlook was changed to stable.
“The decline in oil prices in the last seven months has significantly affected Nigeria’s external position and external vulnerability,” S&P said.
“The tightly contested general elections may pose risks to Nigeria’s external position and the implementation of what we view as the government’s ambitious fiscal consolidation plans, while the Boko Haram group continues to disrupt the north-east.”
Africa’s largest economy, which derives 90 percent of export earnings and 70 percent of the government revenue from oil, is struggling with Brent crude prices having halved since June. The International Monetary Fund (IMF) predicts growth of 4.8 percent this year, down from 6.3 percent in 2014.
The naira has weakened 18 percent in the past six months, the most after Zambia’s kwacha among 24 African currencies tracked by Bloomberg.
“Despite Nigeria’s relatively diversified economy, its fiscal revenue and export dependence on oil continues to be a key vulnerability,” said Razia Khan, the head of Africa economic research at Standard Chartered in London. “The extent of that vulnerability has been exposed by weak fiscal buffers and subsequent pressure on its foreign exchange reserves.”
Electoral officials delayed a presidential poll set for February 14 by six weeks after President Goodluck Jonathan’s security adviser said the army could not guarantee voters’ safety in the north-east, where a six-year insurgency by Islamist group Boko Haram has killed thousands.
Jonathan will face former military dictator Muhammadu Buhari in what is set to be the closest election since Nigeria ended military rule in 1999.
“A downgrade worsens public and investor perception of the economy hit by a fall in oil prices, reserves and the local currency,” Kunle Ezun, an analyst at Ecobank Transnational in Lagos, said before the S&P decision. It could increase the borrowing costs of the federal government and Nigeria’s 36 states, he said.
Fitch Ratings will publish a review on its BB- rating for Nigeria, which has a stable outlook, on March 27, the eve of the vote. Moody’s Investors Service also has a stable outlook for the country and rates it Ba3, the same as Fitch.
Yields on Nigeria’s Eurobonds due July 2023 fell 9 basis points to 6.8 percent at 5.46pm in London of Friday.
Nigeria joined oil-producing countries from Saudi Arabia to Kazakhstan and Venezuela that have had their ratings cut amid the drop in crude prices and it was positive that S&P forecast average growth in gross domestic product of 5 percent between 2015 and 2018, said Paul Nwabuikwu, a finance ministry spokesman.
“This is slightly higher than the 4.8 percent projected by the IMF,” he said. – Bloomberg