Global ratings agency, Fitch Ratings, on Thursday downgraded Nigeria’s long-term foreign exchange issue default rating (IDR) to B+, from BB-, with a stable outlook.
Fitch, which also lowered the unsecured foreign-exchange bonds to B+, from BB-, said the latest rating release reflected the current performance of the Naira, which was devalued on Monday by about 40.7 per cent.
Since the unveiling of the new flexible foreign exchange policy by the Central bank of Nigeria on Monday, Naira has been trading within a price band of N282 and N284 to the dollar at the inter-bank market.
The rate of the Naira at the inter-bank market has been against the high rate of N365 average to the dollar last week prior to the take-off of the new FOREX policy.
A credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of a country, thus there is a big impact on the country’s borrowing costs.
The new rating shows that the country’s financial situation varies noticeably, with non-investment grade largely speculative
Last March, Standards & Poor (S&P) had revised the country’s sovereign credit outlook to negative, from the stable outlook it initially.
The ratings agency said on Thursday that the country’s gross domestic product growth rate would decline from 2.8 per cent in 2015 to 1.5per cent in the current year.
Recently, the International Monetary Fund (IMF) also forecasted that the GDP growth rate would drop to 2.3 per cent.
Fitch said Nigeria’s fiscal and external vulnerability has worsened due to a sharp decline in earnings from oil exports as well as drastic adjustments to fiscal and monetary policies by the monetary authorities’ attempt to mitigate the impact of low global oil prices.
The return of attacks on oil production facilities by armed militants in the Niger Delta region has drastically reduced the country’s 2.1 million barrels per day oil production by more than half, with further threats from the militants to continue the sabotage of facilities till production is reduced to zero.
Fitch estimates show that general government debt/revenue ratio would rise to 259 per cent during the year, from 181 per cent in the previous year.
The ratings agency however said the country’s banks were sufficiently well capitalised to absorb the negative impact of last Monday’s 40.7 per cent devaluation of the Naira against the dollar.