The ratings agency added that its assessment was that the developments are partly the result of weak governance and are likely to last.
It stated that the steep fall in oil production in 2022 and the extension of the expensive oil subsidy have almost entirely eroded the boost to government revenue and exports that would otherwise have been anticipated from higher oil prices.
Added to that,
Similarly, on the external front, it stated that the capacity of the
According to
The next review, it stated, would focus on understanding the Nigerian authorities' strategy to address both domestic and external pressure and assessing the associated default risk for the government's private creditors.
Concurrently,
In justifying the new rating,
It explained that this was due to the 32 per cent drop in oil production since the beginning of the year and growing domestic consumption of petroleum products.
"The constraints on oil production increasingly appear structural, caused by repeated theft and lack of investment in infrastructure. While the oil sector is a relatively modest contributor to Gross Domestic Product (GDP), it is a primary source of revenue and foreign exchange generation," it pointed out.
On the fiscal side, the agency said the scope for the government to deliver on fiscal consolidation was constrained, noting that it expects government debt affordability to weaken further in the years to come from already very weak levels.
"Ultimately, as the government dedicates a growing share of its revenue to paying interest, the policy dilemma between servicing creditors and meeting the population's demand for social and economic development will intensify.
"In particular, the cost of oil subsidy will soon absorb the whole revenue flow from the sector unless the subsidy mechanism is wound-down--a task that has been delayed multiple times despite the country's intensifying credit pressures,"
It explained that
While the generation of non-oil revenue has gradually progressed broadly in line with budget targets,
"Therefore,
"Externally, financial and capital outflows from
"To limit the fall in reserves, the CBN's main policy response has been to ration foreign exchange liquidity, scaling down the size of its interventions in foreign exchange markets and accumulating a backlog of foreign exchange demand.
"Meanwhile, depreciation pressure on the currency has intensified, with the gap between the official and parallel market exchange rates widening. The limited foreign exchange liquidity has also affected banks and companies operating in
It noted that the review for downgrade reflects the risk that external and fiscal pressure further intensifies and constrains the government's access to funding.
Government external debt payments, it stated, remain contained over the coming years - and mostly due to the official sector - but sizeable enough to add to the external pressure absent external funding.
The coming review, it said, would focus on the authorities' policy response to alleviate external and fiscal pressure, including their strategy to manage debt service obligations and foreign exchange reserves, and their capacity to raise significantly government revenue.
"In that regard, the government has already announced that it is exploring options to lengthen the maturity of its debts, which may help limit the size of future funding requirements but could constitute a distressed exchange under
"The review will also assess the likelihood of a devaluation of the currency, which the country resorted to in 2016 and which would increase the government's debt burden, weaken its affordability since 30 per cent of the debt is denominated in foreign currency and raise social risks by fuelling inflationary pressures.
"If sizeable, a devaluation of the naira would also exert downward pressure on the rating,"
It further pointed out that
In addition, it said
"Management of oil revenue is particularly weak; absent fiscal stabilisers, the government runs pro-cyclical policy or worse fails to take advantage of high international oil prices. In 2021, the country's hydrocarbon exports amounted to
"Should
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