- Lack of foreign currency hampering West African economy
- Low government revenue poses risk to debt sustainability
Fitch Ratings Ltd. revised the outlook on Nigeria to negative from stable over concerns that a lack of foreign exchange will hamper the economy, and affirmed the West African nation’s rating at B+, four steps below investment grade.
While Nigeria’s economy will probably expand at 1.5 percent this year, after contracting by an estimated 1.5 percent in 2016, the non-oil industry will continue to be constrained by foreign-currency shortages, the ratings company said in an e-mailed statement on Wednesday.
“Access to foreign exchange will remain severely restricted until the Central Bank of Nigeria can establish the credibility of the interbank foreign-exchange market and bring down the spread between the official rate and the parallel market rates,” Fitch said.
The central bank removed a currency peg in June but continued to intervene to keep the naira at about 315 against the U.S. dollar, compared with almost 500 on the parallel market. Trading volumes have increased since then but remain low. They were $8.4 billion in December, compared with $24 billion in December 2014, according to Fitch.
While government debt remains low at 17 percent of gross domestic product, the shortage of state revenue “poses a risk to debt sustainability,” according to Fitch. The government’s debt stood at 281 percent of revenue as of end 2016, and while 77 percent of that is domestic, foreign-currency borrowing is increasing, the company said.
The yield on Nigeria’s Eurobond due 2023 rose three basis points to 6.76 percent at 9:04 a.m. in the capital, Abuja, on Thursday.
Fitch partly hinges its forecast for the economy to expand this year on increased oil revenue because of a rebound in crude prices and an increase in output to an average of 2.2 million barrels a day compared with 1.8 million barrels pumped in October. The “oil sector will receive a boost from the improved security situation in the Niger delta,” which together with “increased fiscal spending could boost the economy in 2017,” according to Fitch.
Source: Bloomberg
