Recently, the international rating agency – Standard & Poor’s, revised its credit outlook on Nigeria from Stable to Negative. This comes a few months after another international rating agency- Moody’s, also downgraded its outlook for Nigeria, from Stable to Negative. The reasons highlighted included the increasing risks to the government’s fiscal strength and external position signalled by the dwindling foreign exchange reserves, strong dependence on oil revenue and increasing debt service obligation.
The reality is that the tougher economic environment in the country is likely to be worsened by declining oil prices triggered by the coronavirus pandemic and the compliance with OPEC quota of 1.77 mb/d (with another possibility of further OPEC cuts). Certainly, the perception of the country through the lenses of the international rating agencies is likely to
make the situation more challenging. The major challenge will be the increase in cost of foreign borrowing, as foreign investors demand premium for perceived risks. Notably, Nigeria plans to raise Eurobonds worth $3.3bn in 2020, to refinance an existing Eurobond debt of $500mn and to fund the budget deficit.
Although the country has managed to raise cheap domestic debt in the low yield environment, buoyed by the CBN’s recent policy stance, an expected increase in the cost of foreign borrowing is a cause of concern, amid increasing pressure on oil revenue. With
increasing instability in the global economic health, a broadly defensive FX policy stance and rising FGN debt obligation, perception seems rather in agreement with reality.
United Capital Research