International ratings agency Standard & Poor’s has upgraded Nigeria’s credit rating from “B+” to “BB-“, citing improved financial stability and government reforms on fuel subsidies for their improved outlook on sub-Saharan Africa’s second-largest economy.
According to a statement from S&P, the stable outlook assumed that the Nigerian government would continue to pursue its present reforms – particularly in the fuel, banking and electricity sectors – and “that there will be no worsening of political tensions and no significant return of insurgency in the Niger Delta.”
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The rating agency also praised the government for tighter fiscal policy; and said that they may consider raising the nation’s credit rating again if “authorities consistently improve fiscal performance and significantly enhance foreign currency reserves, if transparency in the oil sector and on the fiscal and external accounts improves, and if institutional capacities strengthen, thereby converging with higher rated peers.”
A “BB-” rating is just two notches below S&P’s investment grade, which is a key criteria for global fund managers in risk assessment.
On Wednesday, the Nigerian government was also boosted by news that fellow ratings agency Moody's had also improved its outlook for the nation, assigning a Ba3 rating with a stable outlook.
President Goodluck Jonathan has set out a 2013 budget, which will peg spending to a modest benchmark oil price of $75 dollars per barrel, with all revenue earned above that price to be deposited in the excess crude account, which is intended for savings.
Though he faces political pressure to increase the benchmark price, Jonathan, as well as his finance minister Ngozi Okonjo-Iweala, has thus far been steadfast against such a move.
“Nigeria's fiscal assets in its excess crude account have risen to $8.4 billion (from US$2.0 billion at end-2010), which provides a reasonable fiscal buffer,” said S&P. “External buffers have also been rising on the back of high oil prices and strong exports, with foreign reserves standing at just above $42 billion as of Nov. 1, 2012.’
“In addition, some reform momentum continues. In the past year, the government has cut the fuel subsidy by about half, overhauled the country's electricity sector, and raised electricity tariffs. GDP growth is also strong: in 2012-2015 we expect real per capita GDP growth to average 4.3 percent per year, driven by strong non-oil growth,” they said.
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Yet, S&P warned that “if fiscal and external balances deteriorate”, they may lower Nigeria’s credit rating back to “B+” again.
“Downward pressure could also build if reforms stagnate, growth falters, or political tensions or violence increase substantially,” they cautioned.