Nigeria’s economy gets Fitch’s ‘BB’ rating

Fitch Ratings has affirmed Nigeria’s long-term foreign and local currency IDRs and senior unsecured bond ratings at ‘BB-’ and ‘BB’ .
The outlook is stable, according to the agency, which also affirmed Nigeria’s short-term foreign currency IDR at ‘B’ and Country Ceiling at ‘BB-’.
The affirmation reflects the following key rating drivers: Gross Domestic Product (GDP) growth slowed to 6.4per cent in last quarter 2013, but has shown resilience in the face of exogenous shocks: severe floods in 2012, which hit agricultural output; security problems, especially in the North earlier this year; and increased oil theft and vandalism and the consequent repair shutdowns which have caused oil output to contract for the second year in a row.
The non-oil economy has slowed but still grew by 7.9per cent in 2012 and 7.6per cent in H113. Non-oil growth should pick-up in H213 as normal weather has resumed and the authorities have responded to security problems.
Reforms to the electricity and agriculture sectors could start to boost potential growth. Inflation has been in single digits all year – the lowest in five years and the longest stretch of single digit inflation since 2008. Policy rates are also unchanged.
The Central Bank of Nigeria (CBN) has the twin aims of achieving single-digit inflation and maintaining exchange rate stability. Public finances remain comfortable. Fitch estimates a general government deficit of around 1.8per cent of GDP this year and next. Both oil and non-oil revenues are under-budget and the Excess Crude Account (ECA) has been tapped to compensate. Capital spending also remains under budget. The draft 2014 budget plans ambitious fiscal consolidation, with lower oil production and benchmark oil prices and lower spending than the 2013 budget.
However, Fitch expects that oil production will likely fall short again, and the final budget that emerges from the National Assembly (NA) is likely to be more expansionary. Nevertheless, Fitch expects general government debt to remain stable at just over 20per cent of GDP.
Nigeria’s sovereign and overall external balance sheets, current account surplus, debt service ratio and external liquidity are all stronger than ‘BB’ category medians. Foreign reserves rose steadily in early 2013 but have been falling since May due to reduced oil output, prompting ECA drawdown, and global market turbulence, which has reduced foreign appetite for NGN paper (though net inflows have continued). The CBN intervened to support the naira when it came under pressure mid-year after Fed-tapering turbulence, although reserves have held up much better than many large emerging markets.
Nigeria effectively re-opened the Eurobond market in July, raising $1billion in its second issuance. Reform progress remains mixed. Electricity privatisation has passed a key milestone with generators and distributors now in private hands. Output seems to be on a rising trend, although it has been affected by gas pipeline damage and an impact on GDP growth is hard to discern. Agricultural reforms are also gaining traction.