Nigeria's rating at risk as debt, financing gap rise-Fitch

By Chijioke Ohuocha and Alexis Akwagyiram
ABUJA/LAGOS, June 24 (Reuters) - A sharp rise in Nigeria's
sovereign debt and a ballooning financing gap could trigger a
rating downgrade as policymakers in Africa's biggest economy
struggle to deal with the fallout from a coronavirus-induced oil
price crash, a director at Fitch said.
The global ratings agency downgraded Nigeria to "B" in April
with a negative outlook from "B+" citing aggravation of pressure
on external finances. Moody's said in April it would likely downgrade the country
if the government was unable to alleviate the damage to its
revenue and balance sheet. S&P cut Nigeria's rating in March on
weakening external finances.
Nigeria - also Africa's top oil exporter - is under
increasing pressure to stimulate growth and cut debt after its
first quarter current account turned negative, overvaluing its
naira currency. The oil price slump has slashed government
revenues.
"We have two elements that could lead us to take a negative
rating action/downgrade on Nigeria. Aggravation of external
liquidity pressures and a sharp rise in government debt to
revenues ratio," Mahmoud Harb, sovereign ratings director at
Fitch, told Reuters.
The debt to revenue ratio for Nigeria is set to worsen to
538% by the end of 2020, from 348% a year earlier, before
improving slightly next year, Harb said. The medium debt ratio
for "B" rated countries is 350%, he said.
Nigeria will need $23 billion to meet its external financing
needs this year, Fitch estimates, noting that the country only
has few options, including running down its reserves, after
shelving plans to issue Eurobonds. Abuja's foreign currency reserves could fall to $23.3
billion this year if foreign exchange access is normalised, Harb
said, from around $36 billion.
Nigeria has been restricting access since the pandemic to
boost the naira, similar to a step it took when oil prices
crashed in 2015, which worsened a 2016 recession.
The central bank is yet to provide currency to investors
that need to leave Nigeria, weakening sentiment. Analysts
estimate that around $2 billion needs to exit Nigeria.
Nigeria could avoid a ratings downgrade if it strengthens
its finances, reforms its forex policy and shows a path to
reducing its deficit by boosting non-oil revenues, Fitch's Harb
said.

(Writing by Chijioke Ohuocha; Editing by Toby Chopra)