BEVERLY HILLS, June 25, (THEWILL) – Sovereign Ratings Director at Fitch, Mahmoud Harb, has warned that a sharp rise in Nigeria’s sovereign debt and a ballooning financing gap could trigger a rating downgrade.
The global ratings agency had downgraded Nigeria to “B” in April with a negative outlook from “B+” citing aggravation of pressure on external finances.
Nigeria, also Africa’s top oil exporter, is under increasing pressure to stimulate growth and cut debt after its first quarter current account turned negative, overvaluing its naira currency. The oil price slump has slashed government revenues.
“We have two elements that could lead us to take a negative rating action/downgrade on Nigeria. Aggravation of external liquidity pressures and a sharp rise in government debt to revenues ratio,” Harb, told Reuters.
The debt-to-revenue ratio for Nigeria is set to worsen to 538 per cent by the end of 2020, from 348 per cent a year earlier, before improving slightly next year, Harb said.
The medium debt ratio for “B” rated countries is 350 per cent, he added.
Nigeria will need $23 billion to meet its external financing needs this year, Fitch estimated, noting that the country only has few options, including running down its reserves, after shelving plans to issue Eurobonds.
The country’s foreign currency reserves could fall to $23.3 billion this year if foreign exchange access is normalised, Harb said, from around $36 billion.
Nigeria could avoid a ratings downgrade if it strengthens its finances, reforms its forex policy and shows a path to reducing its deficit by boosting non-oil revenues, Harb said.