In the penultimate week, Standard & Poor's (S&P) - arguably the foremost provider of independent credit ratings in the world - downgraded the nation's ratings outlook from "stable" to "negative" on the basis of dwindling revenues attendant on collapsed oil prices as well as due to what it described as the "unorthodox policy measures" adopted by government. The international rating agency also revealed that the negative outlook took into account "a continued worsening of the business environment and a deterioration of Nigeria's balance sheet." "With Nigeria overwhelmingly reliant on oil," the agency concluded, "its 2009 budget projections may be difficult to attain given longstanding constraints in output stemming from unrest in the Niger Delta." The report also expects the quality of banks' credit and security portfolios to weaken given the turbulence in the capital market and "sudden slowdown in economic growth" - arising from a combination of dwindling government revenues and a sharp decline in bank lending growth.

Most of the comments by S&P were not unexpected. The debate over whether to maintain or reduce the size of the 2009 federal budget has been a raging one among analysts and commentators in the country. The need for the government to quickly and fairly resolve the Niger Delta crisis has also been acknowledged by a significant majority. It is also not open to question that the nation is not immune to the adverse impact of the global economic meltdown and that a mono-product economy (like Nigeria) is in fact more vulnerable to the vagaries in the international oil markets. The announcement follows in the wake of the agency's warning that "ratings across Africa were being skewed to the downside by the global economic crisis" given that their economies are perceived to be fundamentally weak and therefore more vulnerable. In fact, several other African countries including Botswana, Ghana and South Africa have already seen their ratings or outlooks cut, while Tanzania and Zambia have abandoned moves towards getting ratings as they were seen as having very little prospect of issuing foreign currency bonds given tight global credit conditions.

Some have wondered what the downgrading of the nation's outlook portends. It simply means that it will be increasingly more difficult to successfully issue foreign currency bonds as planned by the Federal Government as part-financing of the 2009 budget deficit. It also implies that foreign investors - most of whom perceive S&P ratings as holy sacrament - would be very squeamish about investing both in the money and equities markets as well as in the real sector.

Despite the fact that most of the inferences drawn by S&P were not unexpected, we still consider some of the conclusions unduly harsh and amounting to overkill. For example, the rating agency has an axe to grind with what it disparagingly dubs "foreign exchange controls imposed" by the Central Bank of Nigeria (CBN). We beg to disagree. The measures put in place by the CBN are a far cry from the highly regulated era of the late 80s with a surfeit of red tape and voluminous documentation (such as Form M). Investors dealing in legitimate businesses won't have a hassle repatriating genuine profits as and when they desire. Besides, what was the CBN expected to do? Allow products - regardless of poor quality - to be dumped on the country from every corner of the globe, given Nigerians' ultra-high marginal propensity to consume foreign goods - and watch valuable foreign reserves vanish like mist in the mid-day sun? This is a throw-back to the SAP era and the doctrine of trade liberalization which caused incalculable harm to the nation's fragile economy.

It is our submission that while credit ratings are generally useful as a barometer of economic wellbeing we must not be deluded into thinking they are infallible. A recent example is the celebrated financial institutions that went belly up in the USA - even with excellent AA ratings from S&P just prior to their falling apart! No institution should also be allowed to get away with conveying the unwholesome impression that credit ratings are positive only when the outflow of foreign exchange to industrialized countries continues unabated without any consideration for the economic consequences for the nations affected.

Be that as it may, this newspaper is not happy with the inability of the government to present a concerted plan of action to deal with the clear and present danger the nation faces. The Yar'Adua administration still carries on as if nothing is at stake. Let us restate our view - even at the risk of appearing pedantic - that the government should have significantly reduced the cabinet size and the number of aides. There must be a deliberate action - not just lip service - aimed at reviewing the cost of governance to reflect the changing times. We also hold that there is a crying need for greater cooperation between the CBN and the Presidency to forge well-considered monetary and fiscal policy measures designed to give the economy the required boost.