Nigeria's Outlook Downgraded by Fitch Due to Dollar Shortages - Bloomberg

January 26, 2017
By David Malingha Doya
  • Lack of foreign currency hampering West African economy
  • Low government revenue poses risk to debt sustainability
  • Fitch Ratings Ltd. revised the outlook on Nigeria to negative from stable over concerns that a lack of foreign exchange will hamper the economy, and affirmed the west African nation's rating at B+, four steps below investment grade.

    While Nigeria's economy will probably grow at 1.5 percent this year, after contracting by an estimated 1.5 percent in 2016, the non-oil sector will continue to be constrained by foreign currency shortages, the ratings agency said in an e-mailed statement on Wednesday.

    "Access to foreign exchange will remain severely restricted until the Central Bank of Nigeria can establish the credibility of the interbank foreign exchange market and bring down the spread between the official rate and the parallel market rates," Fitch said.

    The central bank devalued the naira in June but continued to intervene to keep the currency at about 315 against the U.S dollar, compared with almost 500 on the parallel market. Trading volumes have increased since June but remain low. They were $8.4 billion in December, compared with $24 billion in December 2014, according to Fitch.

    While government debt remains low at 17 percent of GDP, the shortage of state revenues "poses a risk to debt sustainability," according to Fitch. The government's debt stood at 281 percent of revenue as of end 2016, and while 77 percent of that is domestic, foreign currency borrowings are increasing, the agency said.

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    Steven Rich
    Sep 17, 2018:
    Well done
    Reply

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