The rating agency S&P downgraded Russia’s sovereign credit rating to ‘junk’, with the rouble strengthening and Moscow-listed shares broadly steady. S&P cut Russia’s rating from BBB- to BB+, citing Russia’s weakened economic growth prospects, hit by low oil prices and Western sanctions over the Ukraine crisis. Two other major ratings agencies, Moody’s and Fitch, are yet to downgrade Russia to below investment grade.
This a potential worry for Nigeria as we approach an inevitable fiscal crisis amidst dwindling oil prices and the depreciation of the naira. Nigeria is dangerously following a familiar pattern already displayed by Russia even though we have less external reserves and little room to wiggle. A junk rating for the country will be very bad considering that the government will do more of borrowing this year to finance budget deficits.
If Nigeria is thrown to junk status, then bond yields will rise higher sending lending rates even higher than it currently is. Is is also likely going to depreciate the naira. The effects is unthinkable!