S&P’s Nigeria credit outlook turns ‘stable’ from negative on Tinubu’s subsidy,FX reforms

By Onome Amuge.

Nigeria’s credit outlook has turned ‘stable’ to ‘negative’in the view of international credit rating agency,Standard and Poor’s (S&P).

The upgrade in the rating is on the strength of the fuel subsidy removal, overhaul of the country’s exchange-rate policies, among other reforms introduced by the President Bola Tinubu administration.

A credit rating, according to analysts familiar with the term, is an independent assessment of a company’s or government entity’s creditworthiness or financial health in general terms or with respect to a particular debt or financial obligation.

S&P, in a recently released statement,  said it has affirmed Nigeria with a ‘B-/B’ rating, six notches into junk and on par with Bolivia and Barbados, and also raised its long- and short-term Nigeria national scale ratings to ‘’ngBBB+/ngA-2’’ from ‘’ngBBB-/ngA-3’’.

“S&P Global Ratings revised the outlook on Nigeria to stable from negative. At the same time, we affirmed our ‘B-/B’ long- and short-term foreign and local currency sovereign credit ratings on Nigeria,” the statement partly read.

The credit rating firm and debt assessor explained that the higher national scale rating reflects the improving reform momentum as well as its view of the sovereign as the most creditworthy entity in the domestic markets, noting that the transfer and convertibility assessment remains ‘B-‘.

It explained further that the stable outlook  indicated balanced risks to the rating, noting that the series of reforms by the new government could benefit the country’s growth and fiscal outcomes if delivered. The ratings agency however admitted that the country’s  planned fiscal spending and inflation remain high.

S&P, in its analysis, said Nigeria’s newly elected government has moved quickly to implement a series of fiscal and monetary reforms, which it believes will gradually benefit public finances and the balance of payments.

The agency projected considerable fiscal savings from the elimination of fuel subsidies and other recent reforms, stressing that “taken together, the elimination of subsidies and the securitization of the Ways and Means advances will generate fiscal savings of around 2.5 per cent of GDP in 2023.”

S&P also expects an improvement in tax intake in the region of  two per cent  points of GDP by 2026.

However, it warns that this could lower the ratings over the next 12 months,if there are increasing risks to Nigeria’s capacity to repay commercial obligations, either because of declining external or domestic liquidity.

“The rating could also go up over the next 12 months if economic performance significantly exceeds our forecasts, and fiscal and external imbalances improve significantly,” the agency said.

Prior to the recent S& P ratings upgrade, Tinubu’s reforms aimed at putting the country

on a more orthodox economic trajectory  from a perceived “battered economy” has been

welcomed  with  optimistic reviews by the international community including the International

Monetary Fund (IMF), Deloitte, and the World Bank.

The World Bank in its assessment of the reforms said it expects Nigeria to generate up to N3.9 trillion in 2023.

The policies have, however, had an adverse impact on the cost of living of the over 200 million populace and

 businesses which have been left wobbling from the effects of the  inflationary pressure and spike in cost of

business operations.

Uche Uwaleke, director,Institute of Capital Market Studies,Nasarawa State University, said the S&P ratings

 upgrade comes at no surprise given that it has been anticipated by the movement in equity prices as soon

as the president came up with the economic reforms.

“it was expected that S&P would come up with a favourable rating. Now that that they have moved their

outlook from negative to stable, there’s also this expectation that the other two big rating services namely

Fitch and Moody’s will equally do the same and all of that is positive  for market performance,”Uwaleke remarked.