Fitch Ratings boosts our transformation agenda-Minister

Nigeria’s Finance Minister and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala

Fitch Ratings boosts our transformation agenda-Minister
Hauwa Noroh Ali, Abuja

Nigeria’s Finance Minister and Coordinating Minister for the Economy, Mrs Ngozi Okonjo-Iweala, says that the upgrade of Nigeria’s economic outlook by Fitch Ratings has laid a strong foundation on which the Federal Government could build its economic reforms and implement the transformation agenda of President Goodluck Jonathan.

According to the Minister, the upgrade by Fitch Ratings was “a great news for the country and a strong foundation for the country to keep building the on-going economic reforms”.

Fitch Ratings, one of the world’s leading rating agencies at the weekend upgraded the country’s Outlook to Stable from Negative.

It also affirmed Nigeria’s long-term foreign currency Issuer Default Rating (IDR) at 'BB-' and Long-term local currency IDR at 'BB', while affirming the short-term rating at 'B' and Country Ceiling at 'BB-'.

Mrs Okonjo-Iweala described the upgrade as a “concrete evidence that the President’s economic transformation agenda is being appreciated.”

In a statement signed by her Senior Special Assistant, Communication and Media, Mr. Paul Nwabuikwu, the finance minister said: “We have to keep working hard to realise the key priorities of the transformation agenda; job creation and building key infrastructure. But this positive development gives us a strong foundation to build on. Fitch did this because of the medium term budget of fiscal consolidation proposed by the Ministry of Finance in line with the transformation agenda.”

Analysts also expressed the belief that the upgrade was a clear indication of the growing confidence of the international community in Nigeria’s on-going economic reforms.

Background

Fitch Ratings had in October last year, lowered Nigeria’s sovereign credit outlook to negative from stable.

It had then, cited the depletion of the country’s windfall oil savings and heightened political uncertainty prior to last year’s general election.

The latest report signed by Director of Fitch's Sovereign Group, Veronica Kalema, and released at the weekend noted however, that “the revision of the Outlook on Nigeria's ratings to ‘Stable’ from ‘Negative’ reflects an improved outlook for reforms following elections in April and the appointment of a strong economic team".

In addition, tighter monetary policy and slightly better fiscal discipline have arrested the rapid pace of reserves declining as seen in the first three quarters of 2010, which had prompted the ‘Negative Outlook’ in October last year.

The ‘Stable Outlook’ anticipates a continued reform progress, a tighter budget for 2012, including progress towards scrapping the petroleum subsidy and making the Nigeria Sovereign Investment Authority-the sovereign wealth fund, operational.

It is also expected that the planned regulatory reforms in the power and oil sector continue to move ahead.

The privatisation process in the power sector has started. Meanwhile, the tariff and gas price reforms, which will facilitate the investment needed to address the acute power shortage, are scheduled for early 2012.

Fitch pointed out that Nigeria's key credit indicators; "strong growth, low public debt and a strong external balance sheet" have continued to provide strong support to its rating.

According to the report, the support from State Governors for the removal of the fuel subsidy had increased the probability that the policy would be implemented.

“The reform will reduce foreign exchange and fiscal leakage and reduce pressure on Nigeria's reserves, promote more efficient energy usage and spur downstream investment. In addition, the planned reforms to the agriculture sector would improve output and productivity and increase rural incomes, with a huge medium-term positive impact on the economy, even if only partially implemented,” the report added.

Fitch had predicted that Nigeria would sustain its high growth rates of between seven and eight per cent, which were far higher than the 'BB' five-year median of 4.4 percent; it had placed the country on.

At 17.8 percent of GDP at the end of 2010, public debt is far below the 'BB' median of 41 percent. This, in spite of the fact that Asset Management Corporation of Nigeria’s bonds were equivalent to 13 per cent of GDP and were guaranteed by the government with increased contingent liabilities.

In addition, non-performing loans recoveries and sinking fund contributions from the banking sector and the Central Bank were expected, on plausible assumptions, to cover their cost, resulting in no ultimate fiscal cost from the banking sector clean-up.

Despite a weakening in the balance sheet due to the decline of Forex Reserves in 2009 and 2010, the GDP remained stronger than the 'BB' median.

Uche Iheanacho(with additional research)
Edited: Hajia Sani