National Association of Securities Dealers (NASD) has said that Fitch Ratings Inc., one of the three most influential ratings agencies in the world which has downgraded all Nigeria’s ratings by one level from a BB to a single B is a true reflection of the nation’s position and that it clearly captures the Nigerian economy.
According to NASD, “We believe that the flexible rate regime will protect the nations limited reserves move us closer to being more efficient economic entity and lay the basis for privatisations and more efficient capital allocation. We also see a strong requirement (and an opportunity) to increase the local composition of investment capital”.
“As one of the OTC markets directly takes control of the FX Futures – thus easing the liquidity of hard Foreign Currency and creating this much needed clarity; NASD continues to build capacity in and mobilise investment flows from local sources into the capital market.
By creating liquidity and transparency in the capital market NASD said the country would move closer to developing an environment capable of efficiently allocating resources and absorbing foreign direct investment (FDI) – ahead of the inevitable ratings upgrade.
In arriving at the latest rating, Fitch had considered “a sharp fall in oil revenue and fiscal and monetary adjustments that were slow to take shape and insufficient to mitigate the impact of low global oil prices”. They also noted the debilitating unrest in some sections of the country and its impact on generating more revenue. Government foreign debt service expenditure is therefore expected to rise and the slowdown in economic activity (-0.4% GDP growth in Q1 2016) is expected to negatively impact the government’s ability to cover external debt by end of 2016.
Fitch however has a stable outlook on the economy’s future since “In the medium to long term, the move to a more flexible exchange rate mechanism, if implemented effectively, is likely to be supportive of economic growth and economic rebalancing in the face of the drop in oil revenues.”
It also anticipates that with clear implementation, Nigeria may end the year with inflation levels of less than 12 per cent.
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