Nigeria Long-Term Rating Lowered To ''B-'' On Weakening External Position


Friday, March 27, 2020   /11:56 AM / by S & P Global Ratings / Header Image Credit: ck10 Media



  • Significantly lower international oil prices following the collapse of the OPEC+ deal on March 6, and lower demand tied to the coronavirus pandemic, have led us to sharply revise down our forecast for oil prices.
  • Lower oil prices will hurt Nigeria's external and fiscal positions in the near term, and the administration's policy responses are unlikely to be enough to mitigate the decline in oil revenue, and foreign-exchange reserve levels are likely to come under pressure.
  • We are therefore lowering our long-term sovereign credit rating on Nigeria to 'B-' from 'B'.
  • The outlook is stable.


Rating Action


S&P Global Ratings lowered its long-term foreign and local currency sovereign credit ratings on Nigeria to 'B-' from 'B'. At the same time, we affirmed our 'B' short-term sovereign credit ratings on Nigeria. We lowered our long-term Nigeria national scale rating to 'ngBBB' from 'ngA-' and affirmed the 'ngA-2' short-term Nigeria national scale rating.


As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on Nigeria are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar.


Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is S&P Global Ratings' revision of its hydrocarbon price assumptions for 2020 and beyond. The next scheduled rating publication on the sovereign rating on Nigeria will be on Aug. 28, 2020.




The stable outlook reflects that, at this lower rating level, risks to the ratings on Nigeria will be balanced over the next six-to-12 months.


We could raise our ratings if Nigeria experiences much stronger economic performance than we currently expect, or if external financing pressures prove to be temporary, while fiscal deficits reduce faster than we project.


We could lower the ratings if we saw increasing risks to Nigeria's capacity to repay commercial obligations, either due to declining external liquidity or a continued reduction in fiscal flexibility. This could occur, for instance, if we see significantly higher debt-servicing costs, sharply reduced foreign-exchange (FX) reserves, or if our projections for gradual fiscal consolidation do not materialize.




On March 19, 2020, S&P Global Ratings materially lowered its oil price assumption for 2020. This follows an earlier significant downward revision of its price assumptions on March 9, 2020. Prices for crude oil in spot and futures markets are more than 55% lower than levels observed during the summer of 2019 when prices increased due to rising geopolitical tensions in the Middle East. When we last reviewed Nigeria (see "Nigeria Outlook Revised To Negative On Falling Foreign Exchange Reserves; 'B/B' Ratings Affirmed," published Feb. 28, 2020, on RatingsDirect), we expected Brent oil prices to average $60 per barrel (/bbl) in 2020 and to gradually decline to $55/bbl from 2021. We now assume an average Brent oil price of $30/bbl in 2020, $50/bbl in 2021, and $55/bbl from 2022 (see "S&P Global Ratings Cuts WTI And Brent Crude Oil Price Assumptions Amid Continued Near-Term Pressure," published March 19, 2020).


Related Link: Nigeria's Outlook Revised To Negative On Falling Foreign Exchange Reserves


Oil prices plummeted following OPEC's failure to agree on further production cuts during meetings on March 6. OPEC+ did not agree to a proposed reduction of 1.5 million barrels per day (mmbbl/d) to address an expected significant drop in global demand partly due to the spread of the coronavirus. The proposed reduction would have been in addition to the current 2.1 mmbbl/d production cut. Shortly after the meetings, Saudi Arabia announced that it was immediately slashing its official selling price and would increase its production to over 12 mmbbl/d in April after the current production cut expires. These actions possibly signal that, despite a collapse in global demand and shrinking physical markets, Russia and Saudi Arabia may engage in a price war to try and maintain market share and market relevance. Oil markets are now heading into a period of severe supply-demand imbalance in second-quarter 2020. In line with our economic outlook (see "Economic Research: COVID-19 Macroeconomic Update: The Global Recession Is Here And Now," published March 17, 2020), we anticipate a recovery in both GDP and oil demand through the second half of 2020 and into 2021 as the most severe effects from the coronavirus outbreak moderate.


Given that Nigeria's reliance on oil revenue is still high-- over 85% of goods exports and about half of fiscal revenues--lower oil prices in 2020 will significantly hurt its external and fiscal positions. We estimate the economy will grow about 1.5% in 2020 (our previous estimate was 2.2%) and average 2.0% in 2020-2023. Our forecast for a sharp decline in oil prices, and consequent lower export revenues, are likely to result in the current account deficit increasing to 3.3% of GDP this year before moderating over the medium term and averaging -1.1% in 2020-2023.

On the fiscal side, lower oil-related revenue will keep general government (federal and state government combined) fiscal deficits elevated at about 5% of GDP this year, delaying planned gradual consolidation, before averaging 4.2% in 2020-2023. The federal government has and will continue to make efforts to increase nonoil revenue, including the increase in value-added tax to 7.5% from 5.0%, reducing fuel subsidies, and raising electricity tariffs among other administrative measures. In addition, adjustments to the exchange rate should also yield the federal government higher naira revenues. Nevertheless, these measures are not expected to be enough to compensate for the forecast reduction in oil revenue. In addition, COVID-19-related spending is likely to affect expenditure.

Funding the twin deficits this year is also likely to be more challenging. This is because issuing in the global markets will be difficult amid global disruption stemming from the coronavirus pandemic, leaving the federal government relying largely on domestic sources and multilateral debt.


Lower FX inflows tied to lower oil receipts into Nigeria are also likely to present policy challenges for the Central Bank of Nigeria (CBN) in the near term with regard to exchange-rate and foreign-exchange-reserve policy. In the face of declining foreign-currency reserves and global risk aversion, nonresident investors holding CBN bills may choose to reduce their holdings and exit, leading to a fall in FX reserves. In addition, the turmoil in global markets is likely to delay the government's international issuance plans in the near term, further starving the country of FX inflows.


Since partially liberalizing the Nigerian naira (through the Nigerian Autonomous Foreign Exchange Fixing Mechanism [NAFEX]) in April 2017, the exchange rate has depreciated only marginally and the CBN has tried to stem depreciation. In March the central bank lowered its official exchange rate by about 15%, the first move on the official rate in over two years. We now see FX reserves further declining to close to $32 billion in 2020, but averaging $34 billion in 2020-2023 as the oil price rebounds in the later years.


All in all, given the sharp fall in the oil price, and that Nigeria has little room to increase oil production, any policy responses will fall short of mitigating the effects of the oil-price decline, in our view. The ratings remain constrained by slower real GDP growth than several peers, low GDP per capita, sizable fiscal deficits, and external imbalances.


Institutional and economic profile: GDP growth is weak, with GDP per capita declining in dollar terms

  • Nigeria's established democratic and federal system helps distribute wealth and power, but reform momentum has been lackluster.
  • Nigeria's growth rates remain low relative to peers with similar wealth levels, and GDP per capita growth has been negative in dollar terms.


Nigeria has an established democratic political system with a tested transfer of power between different political parties and peaceful transitions in recent years. President Muhammadu Buhari, with his All Progressives Congress coalition party, is currently serving a second term after winning the election in March 2019. However, we view government institutions as constrained, with slow decision-making on policy issues. We also view decision-making at the federal level as centralized. Nevertheless, the federal structure helps to redistribute wealth and spread power, putting a check on the extent of overall centralization.


Nigeria is a sizable producer of hydrocarbons. Oil production in 2019 was 2.2 mmbbl/d compared with 1.9 mmbbl/d in 2018. We estimate Nigeria's economy expanded 2.2% in 2019, the strongest expansion since 2015, spurred by higher oil production (and despite lower oil prices) and broadening nonoil sector growth. This year, we forecast economic growth at about 1.5% only, since the effects of lower oil revenue will filter through to the nonoil real sector. We forecast real GDP will expand by a modest 2% over 2020-2023. In per capita terms, this translates into economic contraction over our forecast horizon through 2023. Nigeria's per capita GDP remains below that of several peers, with income levels below $2,000 in 2020.


Flexibility and performance profile: Twin deficits are likely to remain over the medium term given oil-price pressures

  • Nigeria's current account turned to a deficit in 2019, and, given lower oil prices, we forecast deficits in 2020-2021 before a move back to surpluses.
  • Nigeria's fiscal flexibility is constrained by a high interest bill as a percentage of general government revenue, and government revenue as a percentage of GDP remains very low compared with peers.


Although oil revenue supports the economy when prices are high, it exposes Nigeria to significant volatility in terms-of-trade and government revenue. Consequently, the country's balance of payments is affected by swings in global energy markets. After Nigeria posted a current account deficit of 1.5% in 2019, we estimate that it will more than double to nearly 3.3% this year, due to loss of export revenue associated with lower oil prices, before eventually rising to a small surplus of 0.4% of GDP in 2023.


Nigeria's net external debt has been rising sharply over the past few years. This year, we estimate narrow net external debt will likely exceed 75% (our previous estimate was 56%) of current account receipts (CARs), and average 74% until 2023. We estimate gross external financing needs will exceed 113% of CARs plus usable reserves during 2020-2023.


We project the general government deficit, which includes the federal government, states, and local governments combined, will remain at 5.0% of GDP this year and average 4.2% in 2020-2023. Overall, we forecast that Nigeria's net general government debt stock (consolidating debt at the federal, state, and local government levels, and net of liquid assets) will average 42% of GDP for 2020-2023. We include Asset Management Corporation of Nigeria debt (AMCON; about 5% of 2018 GDP--created to resolve Nigerian banks' nonperforming loans) in our calculations of gross and net debt. Also, as of February 2020, we have started to include CBN bill issuance. General government revenue as a percentage of GDP is very low compared with peers and is forecast to average 6.5% of GDP in 2020-2023.


General government debt-servicing costs as a percentage of revenue are high, primarily due to the low general government revenue to GDP. We include interest payments on CBN bills in our calculation of current total interest costs, which has led these costs to increase further--we project they will average 55% over 2020-2023 compared with below 10% in 2014. However, we note that currently the interest on CBN bills is being paid by the CBN.


As mentioned, the CBN operates a few exchange-rate windows. We assess the exchange-rate regime as a managed float and note that the exchange rate has remained fairly steady (on the main windows) for a few years (especially given inflation differentials). The main exchange-rate windows are the official CBN rate for government transactions, the CBN window for banks and manufacturing companies, and the NAFEX window for other transactions.


Average inflation was 11.4% in 2019, compared with 12.1% in 2018. However, the decline in oil prices and the associated naira depreciation are likely to lead to exchange rate pass-through to inflation. We therefore expect inflation to remain high this year, increasing to 12%. Thereafter, we anticipate inflation will decline to average about 9% over the medium term.


In 2019, the CBN took steps to encourage banks to increase lending by introducing a minimum loan-to-deposit ratio of 65%. The banking sector is exposed to inherently high economic volatility because of Nigeria's reliance on oil and its sensitivity to currency depreciation and high inflation. This leaves banks vulnerable to asset-price shocks and asset-quality problems.


Key Statistics

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


Related News – Reviews and Outlooks

1.      Nigeria's Outlook Revised To Negative On Falling Foreign Exchange Reserves

2.     Rating Actions Taken On Several Corporate Issuers With Exposure To Nigeria

3.     Outlooks On Six Nigerian Banks Revised To Negative After Same Action On Sovereign

4.     Fitch Affirms Bharti Airtel at ''BBB-''; Off Watch Negative; Outlook Stable

5.     Sector Outlooks for 2020 Are Gloomier on Economy, Trade

6.     Higher Debt Burdens Raise Debt Sustainability Concerns in West Africa

7.     Can Nigeria get the Economic, Fiscal and Financial Narratives back to Positive?

8.     Moody's Announces Completion of a Periodic Review of Ratings of Nigeria

9.     The GTBank 2020 Economic Outlook: Macro-Economic and Banking Sector Themes

10.  FSDH Macroeconomic Outlook 2020: Accelerating Growth in the New Decade

11.   African Economic Outlook 2020: Developing Africa's Workforce for the Future



Proshare Nigeria Pvt. Ltd.


Related News - #Coronavirus

  1. COVID-19: CSCS Goes Fully Digital, Activates Business Continuity Plan
  2. CBN Governor's Speech At The Nigerian Private Sector Coalition Against COVID-19
  3. BUA Group Donates N1bn to Support COVID-19 Response
  4. CBN Suspends FX Sales to BDCs Until Further Notice
  5. The Nigerian Economic Stimulus Bill 2020 - How Much Cash Would Your Business Get?
  6. #Coronanomics: Understanding A Virus From An Islamic Economic Perspective - Dr. Aliyu Muhammad
  7. COVID-19 and AGM by Proxy: Lessons from GTBank Approach
  8. COVID-19 Tax Measures - LIRS Extends Filing Deadline for Annual Returns
  9. COVID-19: AFREXIM Bank Rolls Out $3bn Facility To Support African Member States
  10. #Coronanomics: The Changing Scale of Edtech, Healthtech, and Virtual Work Space In Nigeria
  11. COVID-19: Cyber Risks, Insurance and Us
  12. COVID-19: Joint Statement by the FCA, FRC and PRA
  13. COVID-19: FirstBank Focussed on Solving Education Challenges Facing Parents
  14. Securities Regulators Coordinate Responses to COVID-19 through IOSCO
  15. CBN to Remain Operational While COVID-19 Lasts
  16. COVID-19: Ecobank Launches "StaySafeNigeria" Media Campaign
  17. 39% of APAC Corporates More Exposed to Coronavirus
  18. World Bank and IMF Issue Joint Statement to the G20 Concerning Debt Relief for the Poorest countries
  19. COVID-19: Dangote Rallies Private Sector Operators To Contain Pandemic In Nigeria
  20. COVID-19: Opportunities For The Nigerian Digital Economy - Dr. (Mrs) Omobola Johnson
  21. In It Together: Protecting the Health of Africa's People and their Economies
  22. The Nigeria Emergency Stimulus Bill Passes Second Reading at House of Reps - For The Records
  23. eTranzact International Plc Proposes Rights Issue of 4.67bn Shares
  24. COVID-19 and the New Work Culture: The Financial Implication for Individuals
  25. Anap Foundation COVID-19 Think Tank Presents 'Coronavirus Alert'
  26. CBN Issues Guidelines for the Implementation of the N50bn Targeted Credit Facility
  27. COVID-19: Measures Taken by UK Government to Support Business
  28. COVID-19 Pandemic and the Middle East and Central Asia: Region Facing Dual Shock
  29. COVID-19: CIBN Adjusts Programmes; Holds AGM Through Teleconferencing, Postpones April Exams
  30. FIRS Grants Tax Concessions in Response to COVID-19
  31. The Limits of Heteredox Economics Revealed, MPC Trapped and Has to Hold
  32. SEC Nigeria Issues Advisory On COVID-19
  33. Fiscal and Monetary Responses to COVID-19 Menace: Racing Against Time
  34. COVID-19: Access Bank, Ecobank Bank Leverage Online Channels
  35. Crude Oil: Unsold Cargoes Forces Price Slash
  36. COVID-19: NSE Extends Time to Submit Audited Financial Statement by Dealing Members
  37. COVID-19: Ventures Platform and Lagos State Government Partner in Fight Against
  38. Fragility of State Government Finances
  39. Philanthropic Efforts Towards COVID-19 Containment Globally
  40. Non-Essential Federal Public Servants to Stay and Work From Home to Check Spread of COVID-19
  41. COVID-19: NSE Activates 30-day Remote Work Plan; Remote Trading to Continue
  42. IsDB Supports OIC Countries With $730m To Combat COVID-19
  43. COVID-19: Presidential Task Force Issues Statement; FEC Meetings Suspended Until Further Notice
  44. Quiet Bond Market as COVID-19 Fears Creates Uncertainty Among Investors
  45. The Federal Reserves is Running Out of Options to Stave Off a Coronavirus Depression
  46. ACCESS Releases Update To Key Stakeholders on Coronavirus
  47. COVID-19: NSE Extends Time to File Audited Financial Statement for the Year Ended 31 December 2019
  48. Coronavirus: Oyo State Activates Emergency Operating Centres, Names Incident Manager
  49. COVID-19: Our Compliance with Lockdown and Measures Put in Place To Serve You
  50. COVID-19: CBN, Bankers' Committee To Support Pharmaceutical Coys
  51. Bankers Committee Reviews Impact of COVID-19 On Economy, Announces Support Packages
  52. WHO launches Health Alert service on WhatsApp
  53. Coronavirus Crisis Is Crushing Global GDP Growth
  54. Coronavirus: Firstbank Deploys Measures to Protect Employees, Customers and other Stakeholders
  55. Blunting the Impact and Hard Choices: Early Lessons from China
  56. COVID-19 Outbreak: How is Africa faring?
  57. COVID-19 Pandemic: Ecobank Encourages Customers to Adopt Digital Self-Service Solutions
  58. COVID-19 Pandemic and Latin America and the Caribbean: Time for Strong Policy Actions
  59. COVID-19: NSE Advises Companies to Put Adequate Precautionary Measures In Place Ahead of 2020 AGMs
  60. Can the Nigerian Economy Survive the Virus?
  61. What's Really Happening In Oil Markets?
  62. COVID-19: Lagos and Ogun States Ban High Density Social Gatherings
  63. Banks Bring Down Cost-to-income ratios As Industry Margins Tighten
  64. NCDC Releases Self Isolation Guidance for Nigerians
  65. COVID-19: CBN to Inject N1trn Stimulus Across Critical Sectors of the Economy
  66. Coronanomics: ICIEC Pledges $150m In Insurance Coverage For OIC Members
  67. Coronanomics: Figuring Out CBN's Recent Policy Intervention
  68. Oil Price Plunge to Pressure US Energy States and Locals
  69. Coronavirus to Weaken Sovereign Fiscal Positions; Track Record Matters
  70. FG Restricts Entry Into Nigeria from 13 Countries; Suspends Issuance of Visa on Arrival
  71. UK Foreign Office Issues Travel Advice Against Non-Essential Travel Worldwide
  72. Fed Actions, US Banks Discount Window Use Prudent Amid Turmoil
  73. CBN Policy Measures In Response to COVID-19 Outbreak and Spillovers
  74. Coronavirus Containment Actions Pose Material Risk to Global Structured Finance
  75. Federal Reserve Cut Rates to Support the Flow of Credit to Households and Businesses
  76. World Bank Group Increases COVID-19 Response to $14bn To Help Sustain Economies, Protect Jobs
  77. There Is No Systemic Risk - Feedback From Goldman Sachs' Conference Call Held Sunday
  78. Coronavirus Containment Actions Pose Material Risk to Global Structured Finance
  79. Africa CDC Policy Recommendation for AU Meetings and Travel During COVID-19 Outbreak
  80. Africa CDC Guidance on Community Social Distancing During COVID-19 Outbreak
  81. COVID-19 and the Nigerian Economy: Backed to the Wall
  82. Coronanomics: Inside Nigeria's Stock Market Response
  83. Coronavirus: IsDB President Calls For Coordinated Efforts To Tackle Pandemic
  84. Coronavirus: FG to Review Budget as Oil Price Plunges
  85. Potential Impact of the Coronavirus Epidemic: What We Know and What We Can Do
  86. World Bank Group Announces Up to $12bn Immediate Support for COVID-19 Country Response
  87. China's Official Manufacturing Index Crashed from 50.0 to a Record Low of 35.7 In February 2020
  88. FG Inter-Ministerial Meeting Reviews Strategies On Containing Coronavirus
  89. Arbitrary Increase in Prices of Protective and Hygiene Products on Account of Coronavirus Concerns
  90. Coronanomics: Understanding The Darker Side of A Virus's Economic Downside
  91. Coronavirus: Establishing The Nexus Between A Bug and Global Equity Markets
  92. WHO Director-General's Opening Remarks at the Media Briefing on COVID-19
  93. First Case Of Coronavirus Confirmed In Lagos
  94. COVID-19 Refinancing Risk Elevated for 6% of Rated China Corps
  95. Global Ports Vulnerable to Coronavirus-Related Volume Declines
  96. The First Innovative Corporate Bond Supporting Anti-Epidemic Is Given The Green Light To Issue
  97. Coronavirus May Add to Liquidity Strain for Some APAC Corporates
  98. Coronavirus Set to Dampen China's Economic Growth
  99. What Coronavirus Means for Investors
  100. Coronavirus Raises Risks for China Toll Road Operators
  101. Coronavirus Could Push Global Oil Market into Surplus
  102. Airlines Face Growing Pressure From The Coronavirus
  103. Coronavirus' Severity Will Frame Effect on Corps, Sovereigns
  104. China Government Suspend Equity Market Trading to Prevent Sell-Off

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


Related News