Experts Say Standard and Poor’s Outlook for Nigeria is Harsh

By Eromosele Abiodun

Experts in the Nigerian financial service sector have described Standard and Poor’s (S&P) outlook for Nigeria as harsh, stressing that the downgrade on the basis of a subjective judgement that institutional governance had deteriorated was a possibility.

In a report made available to THISDAY, analysts at FBN Capital posited that the negative outlook was a cautious stance from S&P strongly influenced by the electoral cycle.

S&P recently reaffirmed its BB- rating on Nigeria’s sovereign, long-term foreign currency obligations, with a negative outlook. Fitch had the same sovereign rating, but with a stable outlook.

The outlook, the analysts added, reflected a one-in-three chance of a downgrade in the event of either deterioration in institutional governance or underperformance relative to the agency’s forecasts for fiscal and external balances.

They added: “S&P holds out the prospect of a return to a stable outlook if political tensions are under control at election time and if fiscal performance remains on track. The scope for a downgrade on the basis of the in-house forecasts is limited. S&P projects, for example, a general government deficit equivalent to 3.0 per cent of GDP in 2015. A deficit on this scale would amount to a marked overshoot, given the impact of the new national accounts on this particular ratio.

“In this context we also note the agency’s views that budget expenditure remains “on track” and that “petroleum prices will largely remain high”.  S&P forecasts average GDP growth of 6.3 per cent between 2014 and 2017. Our average would be about one percentage point higher on the grounds that, once the elections are completed; the new administration will again pick up the baton on economic reforms. The petroleum industry bill, the fuel subsidies, the power sector and the impasse over the sovereign wealth fund spring to mind.”

The rating firm, they argued, also projected nominal gross general government debt/GDP at an average of 19 per cent over the same period.

“The actual ratio for gross sovereign debt in June 2014 was 11.0 per cent (on restated 2013 GDP). It is unclear what other obligations are included by S&P: state governments and some public agencies we assume but not AMCON for example. In any event, the forecast underpins one of the strengths of the Nigeria credit story. The S&P also cites “political jockeying” in the election build-up. This is already well under way although we are comfortable with the fiscal impact and feel that the greatest casualty of the electioneering has been the slowdown in the reform programme, “they pointed out.

Culled from: http://www.thisdaylive.com