S&P Global Downgrades Nigeria’s Long-term Issuers Rating to ‘B-‘

In recent times, we have highlighted the deterioration of Nigeria’s external balance. The recent release of the full year external statistics gives us a full picture of the performance in 2019. The Q4:2019 balance of payments statistics showed a deeper contraction in the current account balance to -$7.0bn or -5.4% of GDP, the largest quarterly current account deficit on record. There was a decline across all the components, save current transfers which remained resilient, up 10.7% Y-o-Y to $7.0bn, driven by higher remittances from abroad. The goods account contracted -$1.5bn during the quarter, the first since Q3:2016, driven by higher imports and a sustained moderation in exports as oil prices tapered during the quarter.

The sharpest contraction was recorded in the services account, which dipped 11.7% Y-o-Y to -$9.3bn. Likewise, the income account remained under water at -$3.2bn, contracting 3.4% Y-o-Y. On annual basis, the current account balance moderated to -$17.0bn or -3.3% of GDP from 1.3% in 2018. This was mainly driven by higher imports of capital goods and services amid a sustained decline in exports, masking the improvement in current transfers during the year. With COVID-19 and the oil price war between Russia and Saudi-Arabia depressing oil prices and affecting investors’ sentiment towards naira assets, we expect a further deterioration in the balance of payments in 2020.

Following elevated external sector vulnerabilities, S&P Global Ratings has lowered Nigeria’s long-term sovereign credit rating to ‘B-‘ from ‘B’ with a stable outlook, but affirmed the 'B' short-term sovereign credit ratings on Nigeria. The downgrade reflects Nigeria’s fragile external position, underpinned by plummeting global oil prices. The implication remains increased outflow of foreign capital, higher cost of external borrowings by the FG and an unattractive investment climate.