Fitch Rules Out Further Downgrade of Nigeria’s Rating in Near Term

•Focus on infrastructure debt instruments, CBN tells rating agencies

Nume Ekeghe

Fitch Ratings has stated that it does not foresee further downgrade on Nigeria’s rating in the near term, adding that it does not expect Nigeria to restructure its debts.

Fitch Director, Sovereign Ratings, Mr. Jermaine Leonard, said this, expressing concern over the country’s rising debt stock.

This was just as the Deputy Governor, Financial System Stability, Central Bank of Nigeria (CBN), Mrs. Aisha Ahmad, called on rating agencies to increase their coverage of infrastructure debt instruments in order to drive more credit to the sector.

They both spoke yesterday at the ‘Fitch in Nigeria’ event held in Lagos.

Fitch Ratings had over the weekend downgraded Nigeria’s long-term foreign currency Issuer Default Rating (IDR) to ‘B-’ from ‘B’, pegging Africa’s biggest oil producer just six notches above default, and at par with Ecuador and Angola.

However, speaking at the event, Leonard while speaking on Nigeria’s rating, said: “We talked about whether we needed to take additional negative action because we were concerned about some debt restructuring issues. Ultimately, we decided that we don’t think that debt restructuring is a big near-term risk.

“Instead, what we think the issue is that these debt service burdens will remain quite high and that will keep Nigeria’s debt stock, especially the federal government’s debt stock high.

“If you compare it to other Fitch-rated sovereigns, just the federal government debt alone is quite high. But then if you consider only the FGN debt-to-revenue ratio, again, it kind of starts to look a little bit daunting next to the rest of the Fitch rating universe.

“And then again, if you think about those debt servicing costs, and what that means to the fiscal balance on an ongoing basis, it essentially means that a big chunk of the government’s revenues are already placed well in advance of the fiscal year in which they are meant to be used. 

“That is going to have a deleterious effect on the government’s ability to use fiscal policy to support economic growth and to do all the things that it needs to do over the next year and within any given fiscal year.”

He added: “That is a problem and it is going to continue over the medium term. So, we are not necessarily concerned that there is going to be a debt restructuring announcement within the next six months or even years. But we do think that this debt servicing issue is something that will remain, at the forefront of our concerns over the next two to three years.”

 On oil production in the country, Leonard said while the country would be able to maintain between 1.1 million to 1.2 million barrels per day oil output, production would still remain below OPEC quota due to security issues that have so besieged the country.

 “We don’t think crude production is going to go down to 500,000 barrels a day. We think we think crude production is going to rebound a little bit, kind of stay somewhere in the 1.1 million, 1.2 million barrels a day into 2023 and beyond.

“And that is excluding condensates, which add another 300,000 barrels or so but you know, even if you add those back you still kind of well below OPEC quota and the kind of production performance that Nigeria has seen in the past and again.

“This is a combination of kind of ongoing major issues that need to be addressed as well as the acute security conditions, which, you know, with the election coming ahead, we think that’s likely to get a little bit worse before it gets better. And so that’s what’s driving our kind of near-term forecasts of oil production,” he added.

Also, speaking at the event, Ahmad noted that increased ratings on infrastructure debt instruments would drive more credit to the sector.

She said: “On the infrastructure side, I think, there should be more focus on infrastructure project finance as the significant infrastructure deficit in Nigeria is being discussed.

“Focusing ratings in this area will provide price discovery on those instruments, which should help investors look in that direction.” 

 However, in a similar event, Ahmad speaking on the sidelines after a tour of the national arts theatre in Lagos, which is playing host to United Nations World Tourism Organisation (UNWTO), noted that the creative industry was set to gain greater traction to contribute to the economy.

The national theatre was renovated by the CBN and the Bankers’ Committee.

She noted that the UNWTO event being held at the national art theatre was monumental given the pivotal role the central bank, the bankers’ committee, the Shared Agent Network Expansion Facilities Limited (SANEF) and all the other partners played to bring the edifice to life.

 She said: “We want to commend the bankers’ committee for funding this initiative, this is just phase A of the grand plan we have and we would be completing the theatre in March, where we would have the main hall which would take about 5,000 people capacity and it going to be just as good as anything you have seen around the world.

“And then we have four verticals focused on IT, fashion, music, and movies. We would be providing an enabling platform for young Nigerians to unleash all of that creativity across the world.”

“What we can look forward to is coming back here to have all sorts of exciting events. There are three cinema halls within this building or coming for an exhibition and art exhibition and once the tech space is ready, you could go in there for hackathons.

“So the possibilities are endless and I think it is a befitting monument to how much the Nigerian creative industry has pivoted itself to the world.”