Borrowing costs to rise as S&P downgrades Nigeria
International credit rating agency, Standard & Poor’s (S&P), has downgraded Nigeria’s outlook for 2020 due to declining foreign exchange reserves. The downgrade could dampen investors’ appetite towards Nigeria’s Eurobond issuance and increase borrowing costs, analysts say.
S& P revised the outlook on Nigeria to negative from stable while at the same time affirming its ‘B/B’ for Nigeria’s long- and short-term sovereign credit ratings. The New York-based rating agency also lowered its long and short national scale rating for Nigeria.
Long-term and short-term sovereign credit ratings of ‘B/B’ mean Nigeria remains in the non-investment or speculative grade as an obligor that currently can meet its financial commitments but could face difficulty in
Doing so in the face of adverse business, financial, or economic conditions.
A Nigeria national scale ratings of ‘nga-/ nga- 2’ means the lowest risk business in the country is susceptible to adverse economic conditions although its capacity to meet its financial commitment on the obligation is satisfactory.
According to S&P, Nigeria’s ratings remained constrained by falling FX reserves, slow GDP growth, low GDP per capita, and low or negative real GDP per capita growth in dollar terms, increasing public debt and multiple exchange rates.
The downgrade in both the country’s outlook and credit rating is coming at a time when Africa’s largest economy is warming up to tap debt offshore for as much as $ 3.3 billion to plug its budget deficit for 2020 and refinance existing Eurobond.
S&P’S downgrade adds to a list of other international rating agencies to slap Nigeria with a negative outlook for the year, given current economic realities.
International rating agencies Moody’s and Fitch had last year revised their outlook for Nigeria from “stable” to “negative” in what they said was due to Nigeria’s increasing vulnerability from its current macro policy setting and the rising risk of disruptive macroeconomic adjustment in the medium term amid continued real appreciation of the naira.
However, while Fitch in its forecast had a slightly higher rating at B+, both Moody’s and S& P had a much lower rating at B2 and B, respectively.