Fitch Downgrades Nigeria to 'B+'; Outlook Stable

Fitch Ratings has downgraded Nigeria's Long-term foreign currency Issuer Default Rating (IDR) to 'B+' from 'BB-' and Long-term local currency IDR to 'BB-' from 'BB'. The Outlooks are Stable.

According to Reuters, the issue ratings on Nigeria's senior unsecured foreign-currency bonds have also been downgraded to 'B+' from 'BB-'. The Country Ceiling has been revised down to 'B+' from 'BB-' and the Short-Term Foreign-Currency IDR affirmed at 'B'.

The downgrade of Nigeria's IDRs reflects the following key rating drivers: Nigeria's fiscal and external vulnerability has worsened due to a sharp fall in oil revenue and fiscal and monetary adjustments that were slow to take shape and insufficient to mitigate the impact of low global oil prices.

Renewed insurgency in the Niger Delta in 1H16 has lowered oil production, magnifying pressures on export revenues and limiting the inflow of hard currency. Fitch forecasts Nigeria's general government fiscal deficit to grow to 4.2% in 2016, after averaging 1.5% in 2011-15, before beginning to narrow in 2017.

The government has adopted a fiscal adjustment strategy centred on raising non-oil revenue and has made some progress in raising tax revenue by improving revenue collection and improving the control over revenue raised by government departments and state-owned enterprises. Despite expected increases in non-oil revenue, the agency expects overall general government revenue to drop to just 5.5% of GDP, from an average of 12% in 2011-15.

On the expenditure side, Nigeria has also cut fuel subsidies and adopted a number of public financial management reforms that have contained the growth of current expenditure, including the move to a Treasury Single Account and the implementation of information systems that have reduced the number of ghost workers. Nigeria's low level of general government debt, forecast to be 14% of GDP in 2016, is well below the 'B' median of 53% and a rating strength.

However, the fall in general government revenue represents a risk to the country's debt profile. Fitch estimates general government debt/revenue will rise to 259% in 2016 from 181% in 2015, higher than the 223% median for 'B' rated peers. At end-2015, only 19% of central government debt was denominated in foreign currency. Nevertheless, depreciation of the naira will increase the debt and debt service burden.

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