4 July 2009
Lagos — Fitch, the US-based ratings agency, yesterday affirmed Nigeria's Long term foreign and local currency Issuer Default Ratings (IDR) at 'BB-' and BB' respectively. The outlook, indicated the agency, is said to be stable.
At the same time, Fitch affirmed the short-term foreign currency IDR at 'B' and the country ceiling at 'BB-'.
"Nigeria's strong sovereign balance sheet is the main support to its ratings. Although weakened by a major reserve loss since September 2008, its balance sheet still stands out amongst its rating peers," says Veronica Kalema, a Director in Fitch's Sovereign Department.
"Earlier banking sector consolidation also resulted in a well-capitalised banking system, which together with Nigeria's strong overall and public net external creditor position and low government debt, have helped cushion the economy against the collapse in oil prices, the global recession, a reversal of capital flows and the banking sector's exposure to a sharp fall in equity prices.
"With some signs of global stabilisation now apparent and a recovery in oil prices, Nigeria looks likely to weather the shocks," Kalema added.
Nigeria moved swiftly to predicate the 2009 budget on a lower benchmark oil price of USD45 per barrel.
But Fitch has a forecast of USD55 a barrel for 2009, while oil prices have hovered at around USD70 per barrel for some weeks.
Nevertheless, oil production shortfalls below the budgeted 2.3 million bpd continue to present a serious revenue challenge.
However, this will be offset by the higher-than-budgeted oil price, reduced disbursements from the Excess Crude Account (ECA) and likely under-execution of the 2009 budget, said Fitch.
The domestic debt market provides financing flexibility for the federal government and a few sub-nationals (state governments) that have started to tap it to fund development spending.
Nevertheless, sub-nationals face a serious revenue squeeze, and there is a risk that this will result in further disbursements from the ECA.
Fitch forecasts small budget deficits at the federal and consolidated government levels and continuing low public debt of 12 per cent of GDP in 2009, well below the 'BB' median.
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