Fitch Ratings has maintained Nigeria’s long-term foreign-currency issuer default rating at ‘B,’ with a stable outlook.
It stated this in its most recent report, titled ‘Fitch affirms Nigeria at ‘B’; Outlook stable,’ which was released on Monday.
According to the report, the Federal Government’s decision to reverse its plan to phase out the implicit fuel subsidies that support price controls on petroleum would reduce the benefits accruing from an increase in oil prices.
According to the report, “higher oil prices would also increase subsidy costs, reducing the benefit of higher global oil prices to the budget.”
We expect the general government fiscal deficit in 2022 to be roughly the same as it was in 2021, at 4.1 percent of GDP. However, we believe that a $10 per barrel increase would narrow the gap.
The report’s key rating indicators showed that higher global oil prices would improve external liquidity and support near-term economic growth.
These gains must be balanced against Nigeria’s high reliance on hydrocarbons, which makes it vulnerable to negative oil price shocks, and structurally low domestic revenue mobilization.
According to Fitch, “the continuation of fuel subsidies will limit the impact of higher oil prices on Nigeria’s public finances.”
“While forecasts are based on Fitch’s December 2021 oil price assumptions ($70 per barrel in 2022 and $60 per barrel in 2023), Fitch has considered alternative oil price scenarios, including current oil prices.”
It went on to say, “While significantly higher oil prices may result in a higher outcome of Fitch’s Sovereign rating model, we may deem such a result inappropriate.”
