S&P affirms stable rating on Nigeria as oil sector improves

S&P affirms stable rating on Nigeria as oil sector improves

Standard and Poors Ratings agency said its latest rating opinion that Nigeria’s credit outlook is stable due to improvements in the oil sector.

S&P said “after recession in 2016, we expect that increasing oil production and government capital expenditures will support Nigeria’s economic growth rates and export revenues over 2017-2020”.

The agency said “We are affirming our ratings on Nigeria at ‘B/B’.

It added that the stable outlook balances our assessment that the oil sector improvements will support economic growth, although external financing pressures remain.

Nigeria’s economy has been in the doldrums since the second quarter of 2016 when Nigeria went into a recession, the worst ever in the last 25 years. While the economy seems to be gaining its balance and inflation has started falling for the first time in 15 months (fell to 17.78% in February), there are concerns that lack of consistency with government policies could cause more damage to the economy.

In this vein, S&P warned that it may lower the ratings “if we observe further deterioration of Nigeria’s fiscal or external accounts, or greater stress in the financial sector than we currently expect”.

As at February, Nigeria’s external reserves has appreciated to about USD30 billion. This was one of the factors that gingered investors to oversubscribe to Nigeria’s USD1 billion Eurobond in January.

S&P said its current rating could be raised “if we see significantly higher economic growth prospects than our base case, marked improvements in external accounts, and an easing of foreign exchange controls on current and capital account transactions that enhances monetary flexibility”.

The Central Bank of Nigeria has not fully floated the Naira (NGN), it has however, increased Forex liquidity in the interbank market which has further reduced the pressure on the local currency.

Over the last six months, the Central Bank had kept interest rate unchanged at 14%. There are feelers that the apex bank might cut rate for the first time as inflation is expected to fall gradually in the coming months.