Fitch Lowers Nigeria’s Foreign-currency

• Fitch Lowers Nigeria’s Foreign-currency

Nigeria’s long-term foreign-currency issuer was downgraded from B+ to B by the Fitch Ratings on Monday.

The negative outlook was a result of the ongoing pressure on the nation’s finances due to the fall in oil prices and the coronavirus pandemic.

Fitch argued that the pandemic shock would raise government debt and interest payment to revenue ratio this year and pressure the nation into an economic recession.

It should be recalled that the S&P downgraded Nigeria’s long-term credit rating from stable to negative earlier last month due to the same reasons stated by the Fitch Ratings.

Weak foreign reserves, rising consumer prices, low oil prices and rising debt obligations are some of the challenges facing Africa’s largest economy.

The unemployment rate rose to 23.1 percent in the third quarter of 2019, the number is projected to rise even higher in 2020 given the present economic situation.

“The plunge in international oil prices, which we assume will average of USD35/barrel in 2020 after USD64.1/barrel in 2019, highlights Nigeria’s high dependence on the oil sector, with hydrocarbon revenues representing 57% of current-account receipts and nearly half of fiscal revenue over the last three years,” Fitch Ratings stated.

“The shock exacerbates the overvaluation of the naira and remedial policy actions taken by the Central Bank of Nigeria (CBN) will not suffice to address deteriorating external imbalances, in our view.

“The CBN allowed the exchange rate on the Investor and Exporter Window, on which the bulk of foreign-currency (FC) transactions is held, to depreciate by 6.7% since mid-January and devalued the official exchange rate by 15% in March.”

It also stated, “Continued pressures on the naira are illustrated by the drawdown in international reserves, which declined by 9.4 per cent year-to-date, representing a cumulative fall of 22.5 per cent since their peak mid-July.”