Analysts have projected that the recent upgrade of Nigeria rating by the global rating agency Fitch will improve the country’s risk perception and raise its ability to borrow from the external sources.
Analysts at Financial Derivatives Company (FDC) said in a report that the revised rating of Nigeria’s outlook to stable from negative while affirming the country’s credit rating at ‘B’ would also lower the country’s borrowing costs.
Fitch Ratings, one of the global credit rating agencies, recently revised Nigeria’s outlook to stable from negative while affirming the country’s credit rating at ‘B’.
The agency said the revision reflects an improvement in the domestic economy following the gradual phasing out of lockdown restrictions and reduced external pressures attributed to the Central Bank of Nigeria (CBN’s) forex rationing measures and partial exchange rate adjustment.
The $3.4 billion credit facilities from the International Monetary Fund (IMF), amongst others, also helped to moderate the impact of the COVID pandemic and lower oil prices on the economy.
FDC said foreign investors rely on credit ratings to assess a country’s credit worthiness, which in turn, influences borrowing costs.
“The revision of Nigeria’s outlook to stable from negative is expected to improve Nigeria’s risk perception, thus increasing the country’s ability to borrow from the capital market while lowering Nigeria’s borrowing costs.
The improved credit ratings, if sustained, will enable Nigeria access loans at more favourable terms and lower the country’s debt service burden,” the company wrote in a note to clients. The timely passage and implementation of the budget will aid the realisation of the government’s economic recovery efforts.
addition, the positive revision to Nigeria’s outlook is also expected to boost
investor confidence in the Nigerian economy which should spark renewed interest
from Foreign Portfolio Investors (FPI), the report stated.
FPI inflows fell sharply by 91.06 percent to $385.32 million in Q2’20 from $4.31bn in Q1’20.
The projected increase in FPI will support the country’s reserves level, which currently stood at $35.75 billion as of October 2, 2020, which has been severely affected by dwindling oil prices and cross country movement restrictions.
“The potent risks to this outlook include a further drop in oil prices, dollar scarcity and difficulty in repatriating funds, resurgence of COVID infections leading to a precision lockdown and halting international travels and trade as well as a possible default in government’s debt repayment,” FDC stated in the report.