NIGERIA AND THE FITCH RATING

The recent lowering of Nigeria's sovereign credit rating from stable to negative by the independent global financial rating institution, Fitch Ratings, has continued to provoke reactions in financial circles across the country.

Reputed as one of the world's best rating institutions, Fitch Ratings had on October 22, downgraded Nigeria's sovereign credit outlook to the consternation of our financial authorities.

It rated Nigeria BB-, which is three notches below internationally accepted investment grade. Fitch cited the depletion of Nigeria's windfall oil savings, the steep drop in the External Reserve, as well as what it called 'heightened political uncertainties', apparently on account of the coming general elections, as reasons for its decision.

The implied meaning of the downgrading is that both economic and political problems might get worse in the country in the months ahead, especially with the national elections coming up next year. This fear is also heightened by the fact that Nigeria is considering a $500 million global Bond issue. This negative classification may result in a higher cost of the issue, which will serve as the benchmark for Nigeria's corporate sector.

Expectedly, the Federal Government has reacted with surprise and disappointment at the Fitch rating, claiming, on the contrary, that the fundamentals of the economy remain strong with reform measures that will put the economy in good stead.

For instance, minister of finance, Mr. Olusegun Aganga, who before his present appointment headed Goldman Sachs, another international rating institution, allayed fears that the Fitch rating has downgraded Nigeria's sovereign credit standing. However, keen observers of the economy maintain that the rating did not come as a surprise. They cited the same reasons proffered by Fitch in arriving at its conclusion.

We are not unmindful of the negative implications of this development. It is, indeed, something to worry about. In terms of status, it implies that our economy may no longer be regarded as stable enough to be an investment destination of choice. Secondly, it is a sign that Nigeria may be gradually heading back to debt overhang. More importantly, it means lower Foreign Direct Investment (FDI) inflow into the country. One of the consequences is that those who make decisions on where to invest, or the countries with which to do business, might be hesitant or lack objective criteria to justify dealing with Nigeria.

Additionally, a nation so poorly rated as this, may be unable to take advantage of the opportunities of economics of scale in the global financial market. The logical outcome of this is that the citizens of that country may suffer, economically. All of these are strong reasons for concern. However, rather than bicker and bemoan the negative rating, government should accept it as a wake-up call and an alert to a crisis situation that needs disciplined and strategic approach towards regaining a favourable stable rating in the years ahead.

Clearly, lack of financial discipline and transparency has marred government's handling of the economy in recent months. This has shown in the sharp drop in our Foreign Reserve which now stands at $33.7 billion, and domestic and external debt at $28.2 billion and $4.5bn, respectively. The Excess Crude Account has also been reportedly drawn down to $450 million, from its former balance of $20 billion in 2007. The general outlook of the economy, therefore, is worrisome.

As Nigeria aspires to be one of the top 20 economies in the world by 2010, the government must realise that no country remains stagnant, waiting for others to catch up. Our economy is in dire need of retooling for greater competitiveness. There is need for improvement in the purchasing power of the vast majority of Nigerians, and improved standard of living, generally.

Government must cut down on wasteful expenditure, especially on political office holders. The Fitch negative rating should open a new chapter for greater fiscal responsibility and management of the economy. This is a duty that rests squarely on the shoulders of government's economic management team. This is the time to put in place critical measures to achieve better performance of the economy.