Global rating agency, Standard & Poor’s, on Friday lowered Nigeria’s credit rating by one level to B, five levels below investment grade and in line with Kyrgyzstan and Angola.
The outlook was changed from negative to stable, Bloomberg reported.
This came as the Federal Government is preparing to issue its first Eurobond since 2013 amid low oil prices and severe shortage of foreign exchange.
Moody’s Investors Service and Fitch Ratings had downgraded Nigeria to four levels below investment grade in the first half of the year.
“Nigeria’s economy has weakened more than we expected owing to a marked contraction in oil production, a restrictive foreign exchange policy and delayed fiscal stimulus,” S&P said in an e-mailed statement after markets closed.
While the government’s debt remains low, “servicing costs as a percentage of government revenues are high and rising,” the company said.
The Debt Management Office had asked banks, which want to manage a $1bn deal, to place bids by September 19.
Yields on the nation’s $500m of securities due in July 2023 have fallen almost by basis points to 6.63 per cent since peaking at 9.4 per cent on January 18.
The bonds have returned 14 per cent this year, compared with the average of 16 per cent for sub-Saharan African sovereign dollar debt, according to Bloomberg indexes.
“The deterioration of the Nigerian credit has been going on for years,” the Head of Research at Ashmore Group Plc, which manages about $53bn of emerging market assets, Jan Dehn, said by phone from London.
According to him, the country needs to show progress by opening its markets and letting the naira trade freely.
The downgrade is the latest blow to the economy, which shrank in the last two quarters and is headed for its first full-year recession since 1991, according to the International Monetary Fund.
While President Muhammadu Buhari’s government announced a record budget for 2016 to stimulate the economy, it is struggling to finance infrastructure projects, as well as pay civil servants’ salaries.
Meanwhile, Africa’s richest man and President, Dangote Group, Aliko Dangote, on Friday advised the Federal Government to boycott the proposed loan from the World Bank.
He told CNBC that a wave of asset selling by the government could be the best way to boost the country’s recession-hit economy.
Dangote said, “I think the real challenge for us is now for us to have the political will in terms of selling some assets.
“I think it’s an easier route than the IMF (International Monetary Fund) or the World Bank to borrow money, because what you need to do is actually to beef up the reserves.”
Dangote spoke to CNBC Africa before Nigeria’s credit rating was downgraded to B from B+ by S&P Global Ratings.