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Fitch Downgrades Nigeria’s Credit Rating

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Fitch Ratings

International rating agency, Fitch Ratings Inc., yesterday downgraded Nigeria’s credit ratings, citing the likelihood of the country to miss its debt obligations.

In a statement issued, yesterday, Fitch said: “The outlooks are stable. The issue ratings on Nigeria’s senior unsecured foreign-currency bonds have also been downgraded to ‘B+’ from ‘BB-’. The Country Ceiling has been revised down to ‘B+’ from ‘BB-’ and the Short-Term Foreign-Currency IDR affirmed at ‘B’.”

The new ratings imply that though Nigeria is currently meeting financial commitments, there is a limited margin of safety and capacity for continued timely payments is contingent upon a sustained, favourable business and economic environment.

Explaining the rationale for downgrading the country’s rating, Fitch said: “Nigeria’s fiscal and external vulnerability has worsened due to a sharp fall in oil revenue and fiscal and monetary adjustments that were slow to take shape and insufficient to mitigate the impact of low global oil prices. Renewed insurgency in the Niger Delta in the first half of 2016 has lowered oil production, magnifying pressures on export revenues and limiting the inflow of hard currency.

Forecast

Fitch forecasts Nigeria’s general government fiscal deficit to grow to 4.2 percent in 2016, after averaging 1.5 percent in 2011-15, before beginning to narrow in 2017.

“Despite expected increases in non-oil revenue, the agency expects overall general government revenue to drop to just 5.5 percent of GDP, from an average of 12 per cent in 2011-15.

“The fall in general government revenue represents a risk to the country’s debt profile. Fitch estimates general government debt/revenue will rise to 259 percent in 2016 from 181 percent in 2015, higher than the 223 percent median for ‘B’ rated peers.  Nevertheless, depreciation of the naira will increase the debt and debt service burden.

“On 20 June, the Central Bank of Nigeria (CBN) commenced trading on the inter-bank foreign exchange market under a revised set of guidelines that will result in a more flexible exchange rate. However, the new regime will not be fully flexible as it will still involve a parallel market as importers of 41 items are excluded from the inter-bank market, which will continue to hinder growth, capital inflows and investment, in Fitch’s view.

Uncertainty

Furthermore, the delayed change in exchange rate policy casts some uncertainty over the authorities’ commitment to a more flexible system. The CBN’s previous exchange rate policy of managing demand for hard currency and restricting access to dollar auctions at the official FX rate resulted in a significant shortage in dollar liquidity.

“Fitch expects that some continued intervention in the FX market will reduce international reserves, which were below USD27bn before the new market began trading, compared with USD34bn at end-2014. Fitch expects reserves to fall to 3.4 months cover of current external payments by end-2016. Fitch forecasts GDP growth to fall to 1.5 percent in 2016, down from 2.7 percent in the previous year, after GDP contracted by 0.4 percent year-on-year in the first quarter of 2016, stemming partly from low hard currency liquidity.  The second quarter is likely to experience a further contraction, as the resurgence of violence in the Niger Delta has brought oil production levels down to around 1.5 million barrels per day (mbpd) in May, from approximately 2.1 mbpd in January.”

The naira yesterday strengthened for the second consecutive day in the interbank foreign exchange market for spot and future transactions, while interest rate fell by more than half to 34 percent.

Data released by Financial Market Dealers Quote (FMDQ) showed that the interbank exchange rate for spot transactions rose to N281.67 per dollar yesterday from N282.8 on Wednesday, indicating N1.1 or 0.3 percent appreciation for the naira. However, the interbank exchange rates for all future transactions    remained stable.

On the other hand interest rate in the interbank money market dropped sharply by more than half in response to decision of Central Bank of Nigeria (CBN) to open its discount window for banks to use their treasury bills to fund foreign exchange purchases.

Interest rate on overnight lending fell from average of 68 per cent on Wednesday to 34 percent yesterday while interest rate on securitised lending fell to 30 per cent from 63 per cent.

Meanwhile FMDQ yesterday announced it has revised the methodology and publication standard for Nigeria Interbank Foreign Exchange (NIFEX) in line with the Principles for Financial Benchmarks of the International Organisation of Securities Commissions (IOSCO). The revised standard, the company stated, would take effect from today June 24, 2016.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Slips With Energy Prices in Europe Halts Record Rally

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Crude Oil - Investors King

Oil dipped toward $72 a barrel in New York after prices of energy commodities in Europe halted a record-breaking run.

West Texas Intermediate futures fell 0.6%, having reached the highest intraday level since early August on Wednesday. A rally in European gas and power prices to unprecedented levels was set to end as industries were starting to curb consumption. The surge in energy rates could temporarily boost diesel demand by as much as 2 million barrels a day as consumers switch fuels, according to Citigroup Inc.

Still, the bullish signals for oil are continuing to increase. U.S. crude inventories dropped by more than 6 million barrels last week to a two-year low, according to government figures, as coronavirus vaccination programs permit economies to reopen. Chevron Corp. Chief Executive Officer Mike Wirth warned that the world is facing high energy prices for the foreseeable future.

The investor optimism is showing up in key oil time spreads widening. Trading of bullish Brent options also surged to a two-month high on Wednesday.

Prices have been pushed higher in recent days “by supply outages combined with expectations of switching from gas to oil in the power sector,” said Helge Andre Martinsen, a senior oil market analyst at DNB Bank ASA. “We still believe in softer prices toward year-end and early next year as curtailed production returns and OPEC+ continues to increase production.”

Strong prices for gas, liquefied natural gas and oil are expected to last “for a while” as producers resist the urge to drill again, Chevron’s Wirth told Bloomberg News. Norway’s Equinor ASA said Thursday it also expects European gas prices to remain high over winter.

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Energy

Fuel Scarcity: Petrol Sells N220 Per Litre in Nsukka

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petrol scarcity Nigeria

Premium Motor Spirit, otherwise called petrol, now sells for between N200 and N220 per liter at the independent marketers’ service stations in Nsukka, Enugu State.

The News Agency of Nigeria is reporting the hike in the price against the official pump price of N162 per liter.

It said it started about a fortnight ago due to the scarcity of the commodity in the town and its environs.

Some residents of the town expressed deep worry over the development in separate interviews with NAN on Wednesday.

A civil servant, Stephen Ozioko, said the situation had further compounded the economic difficulties in the area.

Ozioko said many private car owners had been compelled to park their vehicles at home and move around in public transport.

He said: “Since the scarcity started, I decided to park my car and take public transport to the office and back home. N220 per liter is exorbitant and I cannot afford it considering my salary as a civil servant. I shall continue to use public transport until the situation returns to normal.”

A building material dealer, Timothy Ngwu, said the development had also led to an increase in transport fare in the area.

Ngwu said: “Some people now trek from Nsukka Old Park to Odenigbo Roundabout because of the 100 percent hike in fares from N50 to N100 by tricycle.

“Before now, transport fare from Nsukka to Enugu was N500, but transporters now charge between N800 and N1000.”

Also, a commuter bus driver, Victor Ogbonna, described the scarcity and hike in the price of petrol as “unfortunate and an ugly development”.

Ogbonna added: “Today, only a few filling stations are selling the commodity in Nsukka town, while others are shut.”

He alleged that some filling stations, which claimed to be out-of-stock, were selling to black marketers at night.

He said: “This is why black marketers have sprung up everywhere in the town, selling the commodity for about N300 per liter.”

NAN reports that virtually all the major marketers in the area have stopped the sale of petrol, claiming to be out-of-stock.

The people called on the government to urgently intervene in order to bring the situation under control and also put an end to its harsh economic effects on the messes.

NAN.

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Energy

DPR Targets N3.2T Revenue by Year-End

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Department of Petroleum Resources (DPR)-Investors king

Nigeria’s Department of Petroleum Resources (DPR) will hit the N3.2 trillion revenue target by December 2021, according to its Director/ Chief Executive Officer, Mr Sarki Auwalu.

Auwalu made the disclosure when he led a delegation of the DPR management team to the Executive Secretary of Petroleum Technology Development Fund (PTDF), Mr Bello Gusau, in Abuja on Wednesday.

He said that 70 percent of the revenue projection had already been met. “Last year, we exceed our revenue budget. We were given N1.5 trillion but we were able to generate N2.7trillion.

“This year, our revenue budget was N3.2 trillion. By the end of August 2021, we have generated up to 70 per cent.

“So, we with September, October, November and December, it is only the 30 per cent that we will work over,’’ he said

He noted that the government took advantage of fiscal terms within the old and new legislation, thereby creating a level of increased signature bonuses.

“We reorganise the work programme that is normally being done in the DPR to key into the new operational structure as we see it in the bill, now an act.

“That programme is being handled by the planning and strategic business unit as against what we use to have because the entire work programme is supposed to show not only technical but also commercial and viability of oil fields and to guarantee the return on investment for investors.

“We have also created an economic value and benchmarking unit to key into the new fiscal provisions of the PIA,’’ he said.

Commenting on capacity, Auwalu said the country stands at the advantage of exporting skills to emerging oil and gas countries across Africa with proper implementation of the newly passed Petroleum Industry Act.

This, he said, the DPR was ready to partner with the Fund to continue to build capacity in the oil and gas sector

He noted that the Federal Government was determined to create leeway that would encourage investors and drastically improve the nation’s petroleum industry.

He further noted that no fewer than 300 legal battles in the oil and gas industry in Nigeria, which had been stalled for the past 20 years in courts, had been resolved through alternative dispute resolution.

According to Auwalu, the DPR is strategising well to ensure effective implementation of the PIA.

Responding, Gusau commended the DPR for enabling the industry and enhancing business activities in the oil and gas sector.

He said that DPR remained the head of the oil and gas industry in Nigeria adding that the Fund was grateful to benefit from the wealth of ideas from DPR.

“The last time we visited, we had a good discussion and issues raised are being implemented like tracking the inflow of funds in signature bonus accounts.

“We extended the meeting and involved ministry of Finance, Accountant General office and even the Central Bank of Nigeria (CBN).

“Sitting at field development plans and attending significant meetings, helped us to know where and what the industry is trying to do and it also helps to inform our decisions in training and capacity plans,’’ he said

He urged the DPR to continue on its effort to ensure an efficient and productive petroleum industry in Nigeria

He assured collaboration with all as the head of the implementation committee of the Petroleum Industry Act. (NAN)

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