Over recent months, Nigeria has faced a severe cash crunch due to the fall in global oil process, which has affected the value of the naira. Due to a scarcity of dollars, foreign exchange has been hard to get hold of, which has in turn forced many investors, especially airlines, to pull out of the country.
In response, the government has decided to liberalise its monetary policy, allowing the naira to find its own level. Despite the bad news, Fitch has, however, assigned a stable outlook to the country, even though its ratings on Nigeria’s senior unsecured foreign-currency bonds was also downgraded to B+ from BB-.
Nigeria’s country ceiling was also revised downwards to B+ from BB- while its short-term foreign-currency IDR affirmed at B. Fitch pointed out that the downgrade of Nigeria’s IDRs, among others, was because its fiscal and external vulnerability had worsened due to a sharp fall in oil revenue and fiscal and monetary adjustments that were slow to take shape and insufficient to mitigate the impact of low global oil prices.
It hinged its decision to the renewed insurgency in the Niger Delta in the first half of 2016, which has lowered oil production, magnifying pressures on export revenues and limiting the inflow of hard currency. Fitch also forecast that Nigeria’s general government fiscal deficit was expected to grow to 4.2% in 2016, after averaging 1.5% between 2011 and 2015, before beginning to narrow in 2017.
A Fitch spokesman said: “The government has adopted a fiscal adjustment strategy centred on raising non-oil revenue and has made some progress in raising tax revenue by improving revenue collection and improving the control over revenue raised by government departments and state-owned enterprises. Despite expected increases in non-oil revenue, the agency expects overall general government revenue to drop to just 5.5% of gross domestic product (GDP), from an average of 12% in 2011 to 2015.
“On the expenditure side, Nigeria has also cut fuel subsidies and adopted a number of public financial management reforms that have contained the growth of current expenditure, including the move to a Treasury Single Account and the implementation of information systems that have reduced the number of ghost workers. Nigeria’s low level of general government debt, forecast to be 14% of GDP in 2016, is well below the B median of 53% and a rating strength but the fall in general government revenue represents a risk to the country’s debt profile."
Fitch estimates general government debt/revenue will rise to 259% in 2016 from 181% in 2015, higher than the 223% median for B rated peers. At the end of 2015, only 19% of central government debt was denominated in foreign currency but the depreciation of the naira will increase the debt and debt service burden.
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