The drop in crude oil prices took a number of sovereign rating cuts on oil-exporting nations yesterday, including Nigeria, Mexico, Angola, Ecuador and Oman, although the major cause of the oil slump, Saudi Arabia and Russia, were both spared.
Nigeria was pushed deeper into ‘junk’ territory to B-, Mexico was lowered to BBB, leaving it just two cuts from junk, Colombia is now just one step away, while Angola and Ecuador were both chopped into the CCC default danger zone.
S&P Global Ratings agency said in a summary of its action, “We have lowered the ratings or assigned a negative outlook on some sovereigns because of their heightened risk to manage the fiscal and external shock resulting from lower (oil) prices in addition to the blow to economic growth as a result of the pandemic.”
Crude oil prices have dropped more than 60% this year as the combination of an oil market battle between Saudi Arabia and Russia and the global Coronavirus pandemic.
S&P also slashed its Brent oil prices assumptions for the year to $30 a barrel as part of its move. It warned last month that a drop to an average of $40 could leave the Middle East region’s average sovereign rating just one notch above ‘junk’ by 2040.
In addition, India, the third world largest crude buyer, slashed interest rates in an emergency move today, to counter the economic fallout from the coronavirus pandemic after the Federal Government locked down the country in order to slow the spread of infections across the region.
The Reserve Bank of India lowered the benchmark repo rate by 75 basis points to 4.40% after a video conference meeting of its monetary policy committee (MPC), which was brought forward to respond to the crisis.
Even before the COVID-19 struck, India’s economy had been struggling and growth had probably weakened to at least an eight-year low this quarter and is likely to slow even more.