According to Fitch, a leading provider of credit ratings, there won’t be any more downgrades to Nigeria’s rating in the foreseeable future, and the company also doesn’t anticipate any debt restructuring in Nigeria.
Mr. Jermaine Leonard, Director of Sovereign Ratings at Fitch, mentioned this while voicing alarm about the nation’s mounting debt load.
Just then, Mrs. Aisha Ahmad, the CBN’s deputy governor for financial system stability, called on rating agencies to expand their coverage of infrastructure debt instruments in order to encourage greater lending to the sector.
At yesterday’s “Fitch in Nigeria” gathering in Lagos, they both gave speeches.
Over the weekend, Fitch Ratings lowered Nigeria’s long-term foreign currency Issuer Default Rating (IDR) from “B” to “B-,” placing the continent’s largest oil producer just six notches above default and on par with Ecuador and Angola.
When discussing Nigeria’s rating at the event, Leonard however said: “We talked about whether we needed to take additional negative action because we were concerned about some debt restructuring issues. Ultimately, we decided that we don’t think that debt restructuring is a big near-term risk.”
“Instead, what we think is that these debt service burdens will remain quite high and that will keep Nigeria’s debt stock, especially the federal government’s debt stock high.
“If you compare it to other Fitch-rated sovereigns, just the federal government debt alone is quite high. But then if you consider only the FGN debt-to-revenue ratio, again, it kind of starts to look a little bit daunting next to the rest of the Fitch rating universe.”
“And then again, if you think about those debt servicing costs, and what that means to the fiscal balance on an ongoing basis, it essentially means that a big chunk of the government’s revenues are already placed well in advance of the fiscal year in which they are meant to be used.
“That is going to have a deleterious effect on the government’s ability to use fiscal policy to support economic growth and to do all the things that it needs to do over the next year and within any given fiscal year.”
He continued saying: “That is a problem and it is going to continue over the medium term. So, we are not necessarily concerned that there is going to be a debt restructuring announcement within the next six months or even years. But we do think that this debt servicing issue is something that will remain, at the forefront of our concerns over the next two to three years.”
Regarding oil production, Leonard stated that despite the nation’s ability to maintain production of 1.1 million to 1.2 million barrels per day, production would still fall short of OPEC quota because of the nation’s persistent security problems.
“We don’t think crude production is going to go down to 500,000 barrels a day. We think we think crude production is going to rebound a little bit, kind of stay somewhere in the 1.1 million, 1.2 million barrels a day into 2023 and beyond.
“And that is excluding condensates, which add another 300,000 barrels or so but you know, even if you add those back you still kind of well below OPEC quota and the kind of production performance that Nigeria has seen in the past and again.
He adds that “this is a combination of kind of ongoing major issues that need to be addressed as well as the acute security conditions, which, you know, with the election coming ahead, we think that’s likely to get a little bit worse before it gets better. And so that’s what’s driving our kind of near-term forecasts of oil production,”
Speaking at the occasion, Ahmad also mentioned that better ratings for infrastructure debt instruments would encourage more lending to the industry.
She said: “On the infrastructure side, I think, there should be more focus on infrastructure project finance as the significant infrastructure deficit in Nigeria is being discussed.
“Focusing ratings in this area will provide price discovery on those instruments, which should help investors look in that direction.”
But in a related instance, Ahmad highlighted that the creative sector was poised to acquire more traction to boost the economy while addressing on the sidelines during a visit of Lagos’ national arts theater, which is serving as home to the United Nations World Tourism Organization (UNWTO).
The CBN and the Bankers’ Committee refurbished the national theater.
Given the crucial role the central bank, the bankers’ committee, the Shared Agent Network Expansion Facilities Limited (SANEF), and all the other partners played in bringing the structure to life, she emphasized that the UNWTO event being held at the national art theater was monumental.
She said: “We want to commend the bankers’ committee for funding this initiative, this is just phase A of the grand plan we have and we would be completing the theater in March, where we would have the main hall which would take about 5,000 people capacity and it going to be just as good as anything you have seen around the world.
“And then we have four verticals focused on IT, fashion, music, and movies. We would be providing an enabling platform for young Nigerians to unleash all of that creativity across the world.”
“What we can look forward to is coming back here to have all sorts of exciting events. There are three cinema halls within this building or coming for an exhibition and art exhibition and once the tech space is ready, you could go in there for hackathons.
So the possibilities are endless and I think it is a befitting monument to how much the Nigerian creative industry has pivoted itself to the world.”
