Experts Urge FG To Adhere To Fiscal Responsibility Provisions
With the overwhelming of negative ratings as regards the nation’s economic outlook in the last few weeks, the nation can record meaningful growth if the Federal Government adheres to fiscal responsibility provisions and desists from funding responsibilities beyond its resources, experts have said.
Global leading rating agency, Standard & Poor’s has affirmed Nigeria’s credit rating at “B-/B” but turned negative on its outlook, citing increasing risks to the country’s debt servicing capacity over the next two-to-two years.
This comes about a week after another rating firm, Moody’s Investors Service downgraded Nigeria’s sovereign credit rating further to ‘Caa1’ from ‘B3’ and changed the outlook to ‘Stable’.
Experts believe that the downgrade reflects the parlous state of the nation’s financial system.
Specifically, Vice President of Highcap Securities, David Adonri described the negative rating as a calamity.
According to him, aside from the fact that investors will develop apathy on Nigeria’s sovereign bond due to fear of default, the value of naira is expected to depreciate further because of shortage of dollars to shore up the currency value.
He pointed out that this would attract a high-risk premium on Nigeria’s bond in the Eurobond market.
“Nigeria is in a debt trap, the country needs to issue new sovereign debt to service existing one. If we do not have new issuance, sovereign default is imminent. This might trickle down to the domestic financial market thereby worsening domestic financial instability.
Adonri stressed the need to diversify the economy from import dependence that requires hard currency financing to a self-reliant one that would utilise the domestic factors of production to drive economic growth.
Former President of the Chartered Institute of Bankers of Nigeria (CIBN), Dr Uche Olowo said if there is no policy change to rejig the economy, the negative sentiments from the rating would further worsen the country’s already low foreign direct investments, resulting in a further decline in foreign capital inflows.
Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka said once a country suffers a rating downgrade by an accredited rating agency in the status of S&P, it affects prices and yields placed on financial instruments issued by economic agents in that economy.
He urged the government to allow the economy to run a normal course of adjustment, discontinue with fuel subsidy and Ways and Means advances securitisation to reposition the economy on a sustainable growth.
“More affected are debt instruments that immediately attain junk status in the global financial space. Accordingly, the cost of capital goes up in the economy, as a greater number of foreign investors stay away from participating in the country’s financial markets.