Nigerian Sovereign ratings affirmed with ‘stable’ outlook

LAGOS (Capital Markets in Africa) – S&P Global Ratings affirmed Nigeria’s long- and short-term foreign and local currency sovereign credit ratings at ‘B-/B’, with a ‘stable’ outlook on the long-term ratings. It attributed the ratings’ affirmation to expectations of high global oil prices in the 2022-23 period and a rebound in activity across most non-oil sectors, which will partially mitigate balance of payments and fiscal risks. Still, it considered that the economy’s heavy reliance on oil export receipts makes it susceptible to the volatility in oil prices and pro- duction. It anticipated that elevated debt servicing costs, petroleum subsidies, and lower oil production volumes will weigh on Nigeria’s fiscal balance in the short to medium terms.

In parallel, the agency noted that the ‘stable’ outlook balances increasing pressures from low oil production and delays to subsidy reforms in the next 12 months, with Nigeria’s comparatively deep domestic financial markets, its adequate level of foreign currency reserves, and the limited external commercial debt repayments through 2025. It forecast the country’s gross external financing needs at 81.3% of current account receipts and usable reserves in 2022, as well as at 89% of such receipts and reserves in 2023, 101.2% in 2024, and 101% in 2025. It said that it could downgrade the ratings in case of weaker-than-expected fiscal performance, and/or if the government’s deficit financing strategy comes under strain as a result of tighter global funding conditions, or if domestic banks and pension funds become less willing to absorb additional local currency debt.

Source: S&P Global Ratings