Perception and Reality:
Recently, the International credit rating Agency Standard and Poor’s (S&P) announced that it had lowered Nigeria’s credit rating to “negative” from “stable” due to it declining foreign exchange reserves.
Foreign exchange reserves levels have fallen from $45 billion at midyear 2019 to $38 billion at the end of 2019 and $36.5 billion in February 2020. With the S & P outlook change, all the three international rating agencies have a negative outlook on Nigeria’s sovereign credit rating.
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The issues highlighted befalling the Africa’s largest economy include, the nation economic growth remain weak, slower than it several peers at similar rating level, government sizable debt, strong dependence on oil revenue, and external pressure, signal by dwindling foreign exchange reserves, owing to the late passage of the budget in 2019, resulted in increased financing from central bank through overdraft facilities.
The reality is that the tougher economic condition in the country is likely to worsened by declining oil prices, triggered by COVID-19 pandemic and compliance with OPEC quotas of 1.77mb/d ( with other possible cuts).
Certainly the negative credit rating signaled a possibility of costlier debt should Nigeria proceed with its Eurobonds, foreign investors could demand higher premium on the back of perceived risk rating due to the downgrade. Amid increasing pressure on oil revenues with increasing instability of the global economy, a broadly defensive foreign exchange policy stance and rising FGN debt obligation, perception seem rather than agreement with reality.
Good write up
Thanks
We have a very long way to go, about the issues in our dear country. The aspect of it debt and failure meet our quota by the OPEC. I was quite very unhappy when I look deeply in to the Nigeria economy.
Nigeria been one of the top 10 producers of oil in the world market, we fail diversify our economy, rather we chose to remain as Mono-cultured Economy. We have much to done on the ground.
Exactly
Good analysis there. Good one. We are still far.
Very nice insight #more bless comrd
Good one. However, I want to point out that a change in the rating outlook is NOT a downgrade. A downgrade is the lowering of the actual rating marker, e.g., from AA to BBB. In contrast, an Outlook reflects the potential movement of a rating over a defined future period.
In short, the negative outlook on Nigeria’s sovereign rating points to the fact that a negative rating action MIGHT be taken in the near future.