Fitch Ratings has affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a stable outlook.
In a statement released on Friday, the global rating agency said that Nigeria’s ‘B’ rating is supported by: the large size of Nigeria’s economy and a low general government debt-to-GDP ratio.
Other factors considered for the rating is the small foreign-currency indebtedness and a comparatively developed financial system with a deep domestic debt market.
Conversely, it stated that the rating is, “constrained by particularly weak fiscal revenue, comparatively low governance and development indicators, high dependence on hydrocarbons and continued weak growth and high inflation.”
According to Fitch, Nigeria continues to contend with external liquidity pressures that were magnified by the 2020 pandemic-related shock and resilience to adverse external developments is weak.
Fitch said, “Despite gradual and moderate exchange-rate depreciation over the last year, the naira remains overvalued. Persistent double-digit inflation under a tightly managed multiple-window exchange-rate regime could drive further misalignment of the currency relative to fundamentals.
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“We forecast inflation to average 16.0 per cent in 2021 and 13.4 per cent in 2022, driven by a number of cost-push factor.”
Noting that Nigeria’s long-standing Current Account (CA) surplus shifted to a deficit of 4.2 per cent of GDP in 2019, driven by a fast rise in imports, Fitch said it is estimating a stable CA deficit of 4.2 per cent of GDP for the country in 2020.
This, according to Fitch, will be achieved due to import compression from domestic demand contraction and restrictions on FX access offset a slump in hydrocarbon exports and remittances.
