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Nigeria’s Sovereign Credit Still At Risk Despite Smooth Presidential Election Transition, Fitch Says

Nigeria FlagRisks to Nigeria’s sovereign credit rating remain, despite a smooth transfer of power from March’s presidential elections, as the change of government creates uncertainty over its economic policy, Fitch Ratings said in a statement on Thursday.

Muhammadu Buhari of the All Progressives Congress (APC) is set to succeed the incumbent Goodluck Jonathan as Nigeria’s president on May 29, following the most closely contested election in the country’s history which ended with a landslide victory for Buhari, which was the first defeat on an incumbent in the history of Africa’s biggest democracy.

Following the election defeat — which was mostly peaceful, despite a six-week delay — Jonathan conceded defeat, which appears to have reduced the risk of public disturbances, Fitch said.

The first transition from an elected ruling party to an opposition party, via a smoother and more credible electoral process than was widely expected, is a positive for Nigeria and suggests that its democratic institutions are getting stronger, Fitch said.

However, Fitch said that risks remain as tensions could yet reignite in the Delta region and Boko Haram continues to disrupt economic and political activity in the northeast region.

Fitch also notes that the change of government introduces economic policy uncertainty.

Fitch said in the statement that it assumes that the APC will not deviate fundamentally from the policies of the previous administration — such as maintaining a long-standing focus on areas such as oil, power, and agriculture sector reform — although economic issues weren’t featured prominently during the election campaign, and there are uncertainties about the details.

More from Fitch:

President-elect Buhari’s economic team has yet to take shape and will be untested after 16 years of Peoples Democratic Party governments.

If there were a hiatus or rethink in economic policy, it could delay a return of foreign portfolio inflows and the corresponding support for the exchange rate.

Prior to the elections, the Nigerian authorities mounted a rapid response to the challenges of lower oil prices, compounded by capital outflows. The oil price assumed in the budget has been cut to USD53/b for 2015 and cost-saving and revenue-raising measures have been introduced. Plans to extend successful existing programmes, such as improving tax administration and expenditure monitoring, suggest that the envisaged consolidation is achievable, and we forecast little change in the general government deficit in 2015. It remains to be seen if the new government will affirm the commitment to these or equivalent fiscal measures, as well as the previously planned post-election increase in VAT.

Fitch is set to review Nigeria’s ratings on September 25.


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