Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) suffered another hit on Monday as Fitch downgraded it to a ‘B’ status following pressure on the country’s reserves due to the Coronavirus pandemic as well as the recent plunge in global oil prices.
The Fitch report, which was published on ratings agency’s website earlier this morning, noted that the outlook is negative.
Note that Nigeria’s IDR was, until this morning, rated B+.
The Fitch report went further to note that excessive external pressures will increase the risks of disruption to Nigeria’s macroeconomic adjustment. The country’s uncertain monetary and exchange rate policy and the absence of reliable fiscal buffers, are also factors that are increasing the said risks.
The situation also has the potential to increase the government’s debt and interest payment-to- revenue ratios which, unfortunately, are already high. Ultimately, these could result in an economic recession, the report said.
Meanwhile, the Fitch report said that the recent remedial policy of the Central Bank of Nigeria is not enough to take care of the country’s depleting external reserves. Some part of the report said:
“The plunge in international oil prices, which we assume will average of USD35/barrel in 2020 after USD64.1/barrel in 2019, highlights Nigeria’s high dependence on the oil sector, with hydrocarbon revenues representing 57% of current-account receipts and nearly half of fiscal revenue over the last three years.
“The shock exacerbates the overvaluation of the naira and remedial policy actions taken by the Central Bank of Nigeria (CBN) will not suffice to address deteriorating external imbalances, in our view.
“The CBN allowed the exchange rate on the Investor and Exporter Window, on which the bulk of foreign-currency (FC) transactions is held, to depreciate by 6.7% since mid-January and devalued the official exchange rate by 15% in March.”