International Ratings Agency, Standards and Poors has revised Nigeria’s sovereign credit outlook from Stable to Negative signalling that a ratings downgrades could be placed on Nigeria if things don’t improve. According to S&P it’s decision to place Nigeria on negative was due to Nigeria’s foreign exchange policy.
The outlook revision reflects the negative effects on Nigeria’s economy of the continued fall in oil prices since our last review of Nigeria in September 2015; we have since revised down our oil price assumptions for 2016-2019 by about US$20 per barrel. It also reflects Nigeria’s foreign exchange policy, which is creating dislocations in product and financial markets, in our view.
Nevertheless, we think that medium-term prospects could be assisted by a rebound in the oil price as well as government reforms across the economy, including the establishment of a treasury single account, improvements in the power sector, reforms to the Nigerian National Petroleum Company, and reforms to increase non-oil fiscal revenues and cut fiscal expenditures.
S&P also opined that there was a one in three chance that it could downgrade Nigeria’s credit rating from the current B+/B
The negative outlook signals that there is at least a one-in-three probability that we will lower our rating on Nigeria in the next 12 months. Deterioration of Nigeria’s fiscal or external accounts, or greater stress in the financial sector than we currently expect, could lead to a downgrade. On the other hand, we could revise the outlook to stable if adjustments to the country’s foreign exchange policy settings eased the dislocations in product and financial markets that we now observe, or if external factors improve considerably (for example, due to a sizable rebound in the oil price).
This will be the second negative outlook placed on Nigeria by a rating agency after under a month. Moody’s on the 8th of March included Nigeria in a watch list for countries that might be downgraded soon