Fitch Ratings has affirmed Nigeria’s long term foreign and local currency Issuer Default Rating (IDR) at ‘BB-’ and BB’ respectively. The report released at the weekend put the country’s outlook as stable and affirmed the short-term foreign currency IDR at ‘B’ and the currency ceding at ‘BB’-.

“Nigeria’s strong sovereign balance sheet is the main support to its ratings. Although weakened by a major reserve loss since September 2008, its balance sheet still stands out amongst its rating peers”, says Veronica Lalema, a director in Fitch’s Sovereign Department.

According to the report, banking consolidation achieved in 2005 resulted in a well-capitalised banking system, which together with Nigeria’s strong overall and public net external creditor position and low government debt, have helped cushion the economy against the collapse in oil prices, the global recession, a reversal of capital flows and the banking sector’s exposure to a sharp fall in equity prices, “with some signs of global stabilisation now apparent and a recovery in oil prices, Nigeria look likely to weather the stocks,” adds Kalema.

Nigeria’s 2009 budget was predicted on a crude oil benchmark of $45 to the barrel, even though Fitch put a forecast of $55. Oil currently sells at around $70 per barrel, even though this is hampered by the Niger Delta crisis which has reduced output to about 1.3 million barrels per day from the 2.3 million per day budget outlook.

The Fitch report recognised that this shortfall would be augmented by the higher-than-budgeted oil price, reduced disbursements from the Excess Crude Account (ECA) and likely under-execution of the Federal Government (FG) budget.

“The domestic debt market provides financing flexibility for the Federal Government and a few sub-nationals that have started to tap it to fund development spending. Nevertheless, sub-nationals face a serious revenue squeeze, and there is a risk that this will result in further disbursements from the ECA,” the report added.

It noted that Nigeria’s rating are hampered by data weaknesses and lack of transparency in several key areas including public finances, the balance of payments, international reserves and the banking system. Improvements are essential to enhancing credit worthiness.

“Following an average of 6.0 per cent growth in 2004-2008, in 2009 growth will slow to around 3.0 per cent, reflecting much lower fiscal spending, private credit growth, remittances and oil prices.