Fitch Ratings: CBN Gov's Suspension Will Not Alter Credit Fundamentals


Global rating agency, Fitch Ratings Monday said the suspension of the Central Bank of Nigeria (CBN) Governor, Mallam Sanusi Lamido Sanusi will not significantly alter Nigeria's credit fundamentals.

Fitch affirmed Nigeria's rating at 'BB-' with a stable outlook in October 2013. The next review on Nigeria is scheduled for April 11.

According to the agency, the reaction of the financial markets to Sanusi's suspension was the first major test of “the more credible macro policy regime Sanusi established”.

Sanusi was suspended over allegations of financial recklessness by the presidency.

A report by Fitch stated that if the panic and selling pressure in financial markets are sustained, it would increase inflationary pressure, making it more likely that the Monetary Policy Committee (MPC), at its next meeting, would introduce further tightening measures, including a possible rise in interest rates.

“The failure of Nigeria's international reserves, including the buffer Excess Crude Account (ECA), to rise while oil prices are high has been a long-standing weakness in the sovereign credit profile.

“International reserves have been falling since last April and were $41.2 billion in the month to mid-February, equivalent to 5.6 months of gross current account payments at end-2013, but are not overly large for a country as dependent on oil revenue as Nigeria.

“A larger cushion would be positive for the credit profile. Progress on broader structural reforms remains mixed. The Petroleum Industry Bill (PIB), uncertainty regarding which has caused new investment to slump, remains stalled.

“One of its provisions would be to break up the Nigerian National Petroleum Corporation (NNPC) and bring greater transparency to the oil sector, which would be credit positive,” it said.

However, Fitch described the decision to put an additional $550 million into Nigeria's sovereign wealth fund for investment in electricity as positive, adding that the fund is too small to act as a buffer against shocks.

It added: “Meanwhile, electricity reforms continue, although a significant rise in production remains some way off. Agricultural reforms are also progressing.

“The budget is still in the National Assembly but is being actively reviewed, despite concerns that passage would be hostage to pre-election politics (elections are due in February 2015).”

Continuing, it said: “Production assumptions remain ambitious, however, to judge from recent outturns. The ECA balance was less than $2.5 billion.

“This reduces the risk of an overly stimulative fiscal stance that would increase the debt burden, which remains low, at around 20 per cent of GDP. However, the low ECA and dwindling international reserves also mean the cushion against shocks is being depleted.”