Fitch Ratings has downgraded Nigeria’s long-term foreign-currency issuer default rating to ‘B’ from ‘B+, which means the outlook is negative.
The downgrade and negative outlook reflected the aggravation of ongoing pressures on Nigeria’s external finances following the recent slump in oil prices and the pandemic shock. Intensifying external pressures raise risks of disruptive macroeconomic adjustment given Nigeria’s precarious monetary and exchange rate policy setting and lack of fiscal buffers.
The shock would also raise government debt and interest payment-to-revenue ratios from already particularly high levels and lead to a renewed economic recession, Fitch ratings stated.
It stated, “The plunge in
international oil prices, which we assume will average of $35/barrel in 2020
after $64.1/barrel in 2019, highlights Nigeria’s high dependence on the oil
sector, with hydrocarbon revenues representing 57 per cent of current-account
receipts and nearly half of fiscal revenue over the last three years.
“This
shock exacerbates the overvaluation of the naira and remedial policy actions
taken by the Central Bank of Nigeria will not suffice to address deteriorating
external imbalances, in our view.
