Fitch has downgraded Nigeria’s credit rating to near Junk status

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Fitch Ratings has downgraded Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘B’.

Nigeria is now rated six notches above the default, and similar to Ecuador and Angola. According to a statement on Friday, Fitch has a strong outlook on the country.

The downgrade is due to government debt service costs and worsening external liquidity, despite higher crude oil prices in 2022, among others.

What Fitch said: The report says, “Low oil production and expensive petroleum subsidies have consumed most of the fiscal benefits of high oil prices in 2022 and will continue to put pressure on already low government revenue levels.”

  • If implemented, the subsidy reduction in 2023 will benefit public finances, but the restriction of oil production and the low structural mobilization of non-petroleum income will limit potential income.
  • Fitch noted that the Petroleum Industry Act 2021 contains language mandating the transfer of market prices for refined fuel products, but plans to phase out the subsidy by 2022 have been put on hold due to higher global prices. of oil.

Fitch’s comments: “Fitch expects the implicit petroleum subsidy to cost the government approximately NGN5 trillion (2.4% of GDP) in unpaid revenue from the Nigerian National Petroleum Corporation (NNPC) by 2022, contributing to the expansion the general government (GG) fiscal deficit to 6.1% of GDP.

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  • The old income comes from the spread between the regulated pump price of petrol, which averages at NGN190 per litre, and The cost of importation, which averages over NGN300 per litre.

Amount of debt: The downgrade was also due to the Cost of Debt Spiking: the report said,

  • Fitch predicts that Nigeria’s GG debt will rise to 34% of GDP by the end of 2022. This includes the overdraft of the Federal Government of Nigeria (FGN) with the Central Bank of Nigeria (CBN). Nigeria’s debt stock is low compared to the 2022 ‘B’ median forecast of 57.6% of GDP.
  • “However, its debt service metrics are among the highest for sovereigns rated by Fitch. We estimate that the government’s debt/income will increase to 580% by 2022 and interest/income will reach 47.7%, compared to the current ‘B’ median of 282% and 10.8%, respectively. Both ratios will remain at the same level in 2023 before falling slightly in 2024.

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