Economy
Fitch Downgrades Nigeria to ‘B’ on Weak Fiscal Buffers
By Dipo Olowookere
Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) has been downgraded to ‘B’ from ‘B+ by Fitch Ratings, with the outlook negative.
In a statement issued on Monday, Fitch noted that the lowering of the rating was due to the pressures on the country’s external finances caused by crash in the prices of crude oil at the global market by coronavirus pandemic.
The Brent crude, under which Nigeria’s oil is priced, sold around $23 per barrel some weeks ago and only last week hit just over $30 when news hit town that Saudi and Russia will likely have discussions about the market situation.
Nigeria depends largely on crude oil sales for external revenue and according to Fitch, the intensifying external pressures raise risks of disruptive macroeconomic adjustment given the country’s “precarious monetary and exchange rate policy setting and lack of fiscal buffers.”
It said the shock will also raise government debt and interest payment-to-revenue ratios from already particularly high levels and lead to a renewed economic recession.
Fitch said the shock will worsen the overvaluation of the Naira and remedial policy actions taken by the Central Bank of Nigeria (CBN), which it stressed will not “suffice to address deteriorating external imbalances.”
The CBN allowed the exchange rate on the Investor and Exporter Window, on which the bulk of foreign-currency (FC) transactions is held, to depreciate by 6.7 percent since mid-January and devalued the official exchange rate by 15 percent in March, the rating agency stated.
According to Fitch, Nigeria’s vulnerability to short-term capital outflows is high given the sizeable stock of portfolio investments in short-term Naira debt securities, equivalent to $27.7 billion (6.9 percent of GDP) at end-2019 and representing around 72 percent of FC reserves at the time.
“Of these liabilities, $14.7 billion was in non-resident investments in the CBN’s open-market operation bills that were attracted by high interest rates and hedging instruments offered to non-residents at non-economic costs under the CBN’s policy of stabilising the exchange rate.
“Continued reluctance to adjust the exchange rate, portfolio outflows and a wide current-account deficit (CAD) will lead FC reserves to fall to 2.5 months of current account payments at end-2020 under our forecasts, well below the historical ‘B’ median of 3.8 months, and their lowest level since 1994.
“We estimate that the CAD will widen to a record level of 4.9 percent of GDP in 2020, exceeding the historical ‘B’ median of 4.3%, under our assumption of only modest depreciation of the Naira.
“Nigeria’s long-standing current account surplus shifted to a deficit of 4.2 percent of GDP in 2019 on an upsurge in imports, chiefly of equipment goods.
“We project the CAD to narrow to 1.8 percent in 2021 reflecting partial recovery of oil prices to $45/b, import compression and tighter restrictions on FC access,” the agency said.
It further said the country’s external finances are highly vulnerable to a further fall in international oil prices below the current forecasts of about $34/b.
It noted that despite the expiry of production caps under the OPEC+ agreement, there is little scope to ramp up Nigeria’s oil production beyond the current assumption of 2.1 mbpd given capacity constraints and the build-up of a global supply glut on oil markets.
“Under a stable oil production assumption, a $10 drop in average Brent benchmark prices below our current projection would cause the CAD to widen by an additional 1.6 percent of GDP.
“Furthermore, the domestic oil sector’s operational breakeven is around $25-30/barrel, based on official estimates, meaning production cuts are likely should oil prices continue to hover well below $30/barrel,” it said.
Fitch further said the collapse in oil revenues and the slowdown in economic activity will take a toll on the government’s already weak fiscal revenues.
“This will be partly cushioned by the devaluation of the official exchange rate, which will boost fiscal oil revenues in Naira terms.
“In addition, the fall in international fuel prices will allow the government to eliminate the implicit fuel subsidy. Nigeria’s fiscal breakeven oil price is high, at $133/barrel under our estimates, given particularly low non-oil fiscal intakes.
“We project the general government (GG) deficit will widen to 5.8 percent of GDP (federal government, FGN: 3.1 percent) in 2020 from 3.8 percent (FGN: 2.4 percent) in 2019.
“There is limited scope for consolidation through spending cuts given fiscal rigidity from payroll and interest outlays, which will represent 150 percent of the FGN’s revenues and two-thirds of its expenditures in 2020. Cuts to other operational outlays and capital expenditures will be largely offset by higher spending on health services and support to sectors affected by the pandemic shock,” it stated.
By Adedapo Adesanya
The duo of Afriland Properties Plc and Geo-Fluids Plc crashed the NASD Over-the-Counter (OTC) Securities Exchange by a marginal 0.06 per cent on Wednesday, December 11 due to profit-taking activities.
The OTC securities exchange experienced a downfall at midweek despite UBN Property Plc posting a price appreciation of 17 Kobo to close at N1.96 per share, in contrast to Tuesday’s closing price of N1.79.
Business Post reports that Afriland Properties Plc slid by N1.14 to finish at N15.80 per unit versus the preceding day’s N16.94 per unit, and Geo-Fluids Plc declined by 1 Kobo to trade at N3.92 per share compared with the N3.93 it ended a day earlier.
At the close of transactions, the market capitalisation of the bourse, which measures the total value of securities on the platform, shrank by N650 million to finish at N1.055 trillion compared with the previous day’s N1.056 trillion and the NASD Unlisted Security Index (NSI) went down by 1.86 points to wrap the session at 3,012.50 points compared with 3,014.36 points recorded in the previous session.
The alternative stock market was busy yesterday as the volume of securities traded by investors soared by 146.9 per cent to 5.9 million units from 2.4 million units, as the value of shares transacted by the market participants jumped by 360.9 per cent to N22.5 million from N4.9 million, and the number of deals increased by 50 per cent to 21 deals from 14 deals.
When the bourse closed for the day, Geo-Fluids Plc remained the most active stock by volume (year-to-date) with 1.7 billion units valued at N3.9 billion, followed by Okitipupa Plc with 752.2 million units worth N7.8 billion, and Afriland Properties Plc 297.5 million units sold for N5.3 million.
Also, Aradel Holdings Plc, which is now listed on the Nigerian Exchange (NGX) Limited after its exit from NASD, remained the most active stock by value (year-to-date) with 108.7 million units sold for N89.2 billion, trailed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.5 million units worth N5.3 billion.
By Adedapo Adesanya
The euphoria around the recent appreciation of the Naira eased on Wednesday, December 11 after its value shrank against the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by N5.23 or 0.3 per cent to N1,547.50/$1 from the N1,542.27/$1 it was valued on Tuesday.
It was observed that spectators’ activities may have triggered the weakening of the local currency in the official market at midweek as they tried to fight back and ensure the value of funds in foreign currencies strengthened.
The domestic currency was regaining its footing after the Central Bank of Nigeria (CBN) launched an Electronic Foreign Exchange Matching System (EFEMS) platform to tackle speculation and improve transparency in Nigeria’s FX market.
At midweek, the Nigerian currency depreciated against the Pound Sterling by N3.56 to close at N1,958.68/£1 compared with the preceding day’s N1,955.12/£1 and against the Euro, it slumped by 34 Kobo to trade at N1,612.66/€1, in contrast to the previous session’s N1,613.00/€1.
As for the black market segment, the Naira lost N45 against the American currency during the session to quote at N1,670/$1 compared with the N1,625/$1 it was traded a day earlier.
A look at the cryptocurrency market showed a recovery following profit-taking as the US Consumer Price Index report matched economist forecasts.
The news was enough to convince traders that the Federal Reserve is certain to trim its benchmark fed funds rate another 25 basis points at its meeting next week.
The move also saw Bitcoin (BTC), the most valued coin, return to the $100,000 mark as it added a 2.9 per cent gain and sold for $100,566.12.
The biggest gainer was Cardano (ADA), which jumped by 15.00 per cent to trade at $1.16, as Litecoin (LTC) appreciated by 10.4 per cent to sell for $121.76, and Ethereum (ETH) surged by 7.0 per cent to $3,929.30, while Dogecoin (DOGE) recorded a 6.7 per cent growth to finish at $0.4181.
Further, Binance Coin (BNB) went up by 5.2 per cent to $716.72, Solana (SOL) expanded by 4.6 per cent to $229.77, and Ripple (XRP) increased by 4.2 per cent to $2.43, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closed flat at $1.00 apiece.
By Aduragbemi Omiyale
The Dangote Refinery located in the Lekki area of Lagos State has made its first export of premium motor spirit (PMS) just three months after it commenced the production of petrol.
In September 2024, the refinery produced its first petrol and began loading to the Nigerian National Petroleum Company (NNPC) on September 15.
However, due to some issues, the facility has not been able to flood the local market with its product, forcing it to look elsewhere.
In a landmark move for regional energy integration, Dangote Refinery has partnered with Neptune Oil to take its petrol to neighbouring Cameroon.
Neptune Oil is a leading energy company in Cameroon which provides reliable and sustainable energy solutions.
Dangote Refinery said this development showcases its ability to meet domestic needs and position itself as a key player in the regional energy market, adding that it represents a significant step forward in accessing high-quality and locally sourced petroleum products for Cameroon.
“This first export of PMS to Cameroon is a tangible demonstration of our vision for a united and energy-independent Africa.
“With this development, we are laying the foundation for a future where African resources are refined and exchanged within the continent for the benefit of our people,” the owner of Dangote Refinery, Mr Aliko Dangote, said.
His counterpart at Neptune Oil, Mr Antoine Ndzengue, said, “This partnership with Dangote Refinery marks a turning point for Cameroon.
“By becoming the first importer of petroleum products from this world-class refinery, we are bolstering our country’s energy security and supporting local economic development.
“This initial supply, executed without international intermediaries, reflects our commitment to serving our markets independently and efficiently.”
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