Nairametrics|Fitch today assigned a B+(EXP) rating to Nigeria’s upcoming Eurobond issue. On face value, it is not the worst of ratings. A CCC or CC rating means default is imminent or likely to happen. A deeper assessment, after shedding the layers of legalese, shows the concerns foreign investors have about the country’s macro-economic and foreign exchange policies. The road show embarked on by the federal government team led by Finance Minister Kemi Adeosun and Deputy CBN Governor Sarah Alade may not yield much effort.
Crude oil prices have risen to over $50 dollars but significant risks remain. The economy is in recession, and from all forecast may not recover till the second half of the year. The probabilities of a militant attack on production facilities or a fall in oil prices could worsen the current economic crisis.
The unclear foreign exchange policy being implemented by the CBN has not encouraged foreign exchange inflows despite a devaluation which has made Nigerian assets cheap in dollar terms. The country continues to maintain multiple exchange rates for various sectors of the economy, with a wide premium between inter- bank rates at ₦305 naira and parallel market rates almost ₦ 500 naira.
These factors mean the country will pay a higher premium for the bond issue, to encourage investors to subscribe. Thus increasing the country’s debt service ratio which already hovers around 30% of the federal budget Bond proceeds will be used to fund the nation’s 2017 budget. Nigeria last accessed the bond market in July 2013 raising $1 billion dollars in five and ten year debt respectively.