Standard and Poor’s (S&P), has revised its outlook on Nigeria from stable to negative, and lowered the country’s B-/B long- and short-term foreign and local currency sovereign credit ratings.
It also lowered its long – and short-term Nigeria national scale ratings to ‘ngBBB-/ngA-3’ from ‘ngBBB/ngA-2’ and the transfer and convertibility assessment remained ‘B-‘.
The international rating agency said on Friday in a statement that the negative outlook “reflects increasing risks to Nigeria’s debt servicing capacity over the next one-to-two years due to intensifying fiscal and external pressures.
“The outlook revision reflects our view that Nigeria’s debt servicing capacity has weakened due to high fiscal deficits and increased external pressures.
“These stresses stem from low (albeit recently rising) oil production volumes, large refined-petroleum subsidy costs, high debt service expenditure, and a relatively large planned fiscal deficit in the 2023 budget.”
S&P said oil production, including condensates, averaged about 1.37 million barrels per day (mbpd) last year — a figure below the budgeted 1.6mbpd and Nigeria’ Organisation of the Petroleum Exporting Countries’ (OPEC) production quota of 1.8mbpd.
Other pressures include large refined-petroleum subsidy costs, high debt service expenditure, and a relatively large planned fiscal deficit in the 2023 budget.
The outlook revision reflects our view that Nigeria’s debt servicing capacity has weakened due to high fiscal deficits and increased external pressures.
It continued: “The economy is estimated to have expanded by about 2.8 percent in 2022, and we forecast real GDP to average 3.1 percent in 2023-2026,” S&P said.
“Below-capacity oil production will likely continue to affect export growth, while inflationary pressure, fiscal constraints, and sluggish investment will weigh on consumption and investment growth.
“However, after the elections, these factors are likely to be partially counterbalanced by a new, potentially more business-friendly administration.”
S&P also lowered the country’s long- and short-term national scale ratings to ‘ngBBB-/ngA-3’ from ‘ngBBB/ngA-2’.
The agency’s revised outlook is sequel Moody’s Investors Service’s Moody’s downgrade of Nigeria’s credit rating from B3 to Caa1 a week earlier, due to the government’s fiscal and debt position, which it expects to keep deteriorating.
S&P however said its negative outlook could change, depending on developments in Nigeria’s fiscal situation weighed down by “limited and expensive” access to international capital markets.
It said: “We could lower the ratings if risks to Nigeria’s capacity to repay commercial obligations continue to worsen, either because of declining external liquidity or a reduction in fiscal flexibility.
“If we see higher fiscal expenditure, higher debt servicing costs, or significantly reduced liquid foreign exchange reserve levels.
“If Nigeria experiences significantly stronger economic performance than we expect, and external and domestic financing pressures prove to be contained, while fiscal deficits decrease faster than we project.”
