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Fitch rates Nigeria lower, blames Buharinomics for economy crisis

Fitch, an international credit rating organisation, has downgraded Nigeria’s economic outlook from stable to negative while affirming the B+ rating. #FITCH #+B-RATING



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Fitch, an international credit rating organisation, has downgraded Nigeria’s economic outlook from stable to negative while affirming the B+ rating.

In a fresh report obtained by Nairametrics, Fitch stated that the downgrade of Nigeria’s economic outlook is traceable to the disruptive macroeconomic policies under the administration of President Muhammadu Buhari.

According to Fitch, the downgrade of Nigeria’s economic outlook reflects the increasing vulnerability from the current macro policy setting in Nigeria, Central Bank’s complex regulatory measures, rising country’s debt, low fiscal revenue and uncertainty in governance.

Vulnerability in Nigeria’s macro-policy settings

In the report, the American rating firm stated that the increasing vulnerability from the current macro-policy setting has raised risks of disruptive macroeconomic adjustment in the medium terms and continued a real appreciation of the Naira.

  • According to Fitch, a sharp devaluation of the exchange rate under the current policy framework would stoke macroeconomic volatility and significantly weaken some of Nigeria’s key credit metrics, including its GDP per capita.
  • Fitch also noted that the substantial real appreciation of the naira over the last year appeared uncorrelated with macroeconomic fundamentals and was set to continue, driven by high inflation.
  • It was stated that commodity terms of trade had deteriorated somewhat and would decline further, weighed down by lower oil prices.
LDR: Growing the real sector by fiat?, Rapid increase in food prices temporary – Emefiele, CBN and other industry stakeholders establish N1 billion Bankers’ Charitable Endowment Fund , How the CBN’s OMO restriction is affecting the market  , Nigerian economy to grow by 2.38% in Q4 - CBN 

Godwin Emefiele

[READ MORE: Nigeria’s economic growth lower than non-oil dependent nations- IMF)

Central Bank’s unconventional Policies

While providing further details on the state of the Nigerian economy, Fitch delivered an assessment of the policies on the Central Bank of Nigeria (CBN). According to Fitch, the CBN is striving to maintain a stable nominal exchange rate through an array of unconventional and economically costly policy measures.

  • First, Fitch noted that major risks stemmed from the central bank’s policy of attracting portfolio investments in its short-term Open Market Operations (OMO) bills through high yields and hedging instruments offered to non-resident investors at low cost, despite a wide margin between the naira and dollar interest rates.
  • As a result, non-resident holdings of the CBN’s OMO bills soared to $17 billion by end-August, equivalent to 40% of foreign-currency reserves at the time.
  • The credit rating organization noted that challenges to the durability of the current policy setting were underscored by increasingly complex regulatory measures taken by the CBN to reconcile attracting foreign investments in OMO bills and spurring bank lending.
  • Fitch further noted that the Central Bank has also recently limited operations in the OMO to banks only, and separately imposed a floor on bank loan-to-funding ratios to support credit growth.
  • Hence, it was disclosed that lower OMO market liquidity due to a narrower range of participants is likely to have dampened net portfolio inflows, contributing to a 12% drop in FX reserves in November.

Current Account Deficit to persist hits 24 years low

In order words, Fitch disclosed that the Current Account (CA) balance had shifted to deficit from a long-standing surplus, pointing to deteriorating macroeconomic imbalances and adding to external vulnerability.

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  • According to Fitch, the CA would record a deficit of 1.6% of GDP in 2019, its second-weakest level in 24 years, after a surplus of 2.6% in 2018. Meanwhile, Fitch forecasts the CA deficit would moderate to an average of 0.7% of GDP in 2020-2021.
  • The rating firm’s also disclosed that foreign exchange reserves in Nigeria would average 4.7 months of CA payments over 2019-2021, down from 6.1 months in 2018.

Rising debts and weak reforms 

Fitch further disclosed that debt remains on an upward path in Nigeria while particularly low fiscal revenues and public fund mismanagement constrain the sovereign’s ability to support a rising debt burden.

  • Fitch predicts that debt/revenue ratio which is particularly high, at 333% (Federal government (FGN), debt: 777%) in 2019, will rise close to 400% (FGN debt: 922%) in 2021, well above the forecast ‘B’ median of 248%.
  • Weaknesses in public fund management are illustrated by rising monetary financing, a large and uncertain amount of government arrears, and a multitude of contingent liabilities on which transparency is poor.
  • Fitch forecasts that as Nigeria’s low non-oil fiscal revenues linger, the government deficit will deepen.
  • Also, inflation is high and poised to accelerate. Fitch projects Nigeria will average 13% in 2020-2021 from 11.3% in 2019, well above the forecast ‘B’ median of 5% and inflation rates in Nigeria’s main trade partners.
  • According to Fitch, the acceleration in inflation will be driven by a host of recently enacted policy measures which include the upcoming raise of the VAT rate, 66.7% hike of the minimum wage, as well as the recent closure of land borders to foreign trade and tightening restrictions on FX financing for a wide range of imports.
Minister of Finance Zainab Ahmed, VAT

Zainab Ahmed

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[READ ALSO: Nigeria’s Inflation rate drops to 11.02% in August 2019 despite border closures)

In conclusion, Fitch projects average GDP growth of 2.4% in 2019-2021, well below the ‘B’ median of 3.4% and the five-year average demographic growth rate of 2.7%.

Fitch noted that the prospects for supply-side, fiscal and exchange-regime reforms that could tackle the major constraints for Nigeria’s credit profile are weak, as reflected by the record in recent years.

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Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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    Macro-Economic News

    BREAKING: Nigeria’s inflation rate surges to 18.17% in March 2021

    Nigeria’s inflation rate for the month of March 2020, rose to 18.17% from 17.33% recorded in February 2021.



    Nigeria’s inflation rate for the month of March 2020, rose to 18.17% from 17.33% recorded in February 2021.

    This is according to the Consumer Price Index report, recently released by the National Bureau of Statistics (NBS).

    Food inflation spikes to 22.95% from 21.79% recorded in the previous month, while core inflation, which excludes the prices of volatile agricultural produce rose to 12.67% from 12.38% recorded in February 2021.


    More details shortly…

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    Business News

    BUA Group, French company announce progress in 200,000 bpd refinery project

    This is coming about 6 months after both firms signed an agreement for the supply of process technologies and the design of the facility.



    The BUA Group and Axens, a French-based petroleum technology company, have both signed a progress acknowledgement statement for the proposed BUA multi-billion-dollar integrated 200,000 barrels per day refinery in Akwa Ibom State.

    This is coming about 6 months after both firms signed an agreement for the supply of process technologies and the design of the facility.

    BUA, while making the disclosure in a statement on Wednesday, April 14, 2021, said that the French President, Emmanuel Macron, commended its Chairman, Abdul Samad Rabiu, for his commitment to developing lasting relationships between French and Nigerian businesses.

    READ: What the $1.5 billion Port Harcourt refinery deal means to us – Maire Tecnimont

    The statement said that this came as the French Minister for Foreign Trade and Economic Attractiveness, Franck Riester, paid a visit to the BUA Group Headquarters in Lagos where he handed over a personal invitation from Macron to Rabiu to attend the Choose France Summit in June in Paris representing business leaders from Nigeria and Africa.

    The French minister also witnessed the signing of a progress acknowledgement statement between BUA Group and Axens of France for the proposed refinery project, according to the statement.

    The statement also said that during the visit, it was announced that the BUA chairman had been appointed Chairman of the France Nigeria Investment Club.

    READ: FG reacts to reports of revoking 32 refinery licenses

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    While thanking the minister and Macron for their unwavering support in bringing BUA and French businesses together, Rabiu said BUA had so far initiated partnerships and had developed personal relationships with a few French businesses, including Axens.

    He expressed confidence in the quality of expertise and technical know-how of the French companies BUA had partnered with.

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    Rabiu pointed out that the BUA refinery would reduce the huge cost of transporting Nigerian crude offshore, refining it and bringing it back into the country when fully operational.

    READ: Abdulsamad Rabiu’s stake in BUA Cement has increased by N1.2 trillion in value since listing in 2020

    He said that the choice of Akwa Ibom for the refinery was due to the huge availability of raw materials and its proximity to export petroleum products to regional countries.

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    The President of Axens, Jean Sentenac, in his statement, said he was pleased that the project was advancing on schedule and expressed delight for the very good cooperation between all the involved parties, reiterating the commitment of Axens in delivering the BUA Refinery Project on time and with the highest standards.

    READ: FG to open LPG distribution channels in all local governments

    Bottom line

    The completion and take-off of the refinery owned by the BUA Group would come as a huge boost for the Federal Government’s effort to stop the importation of refined petroleum products, ensuring that the country becomes a net exporter of these products.

    This will also help to conserve the scarce foreign exchange as the completion and take-off of the Dangote refinery and other similar refinery projects will help ensure self-sufficiency in the country.

    The BUA Group, just a few days ago, was listed as one of the companies with an active refinery license from the Department of Petroleum Resources (DPR).

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