Sp downgrades nigerias credit rating on foreign exchange reserves

You're referring to the recent credit rating downgrade of Nigeria by S&P Global Ratings (S&P) due to concerns over the country's foreign exchange reserves.

Here's a summary of the situation:

What happened: On January 27, 2023, S&P downgraded Nigeria's long-term foreign currency sovereign credit rating from B- to CCC+. This is the lowest investment-grade rating, indicating a high level of credit risk.

Reasons for the downgrade: S&P cited several reasons for the downgrade, including:

  1. Declining foreign exchange reserves: Nigeria's foreign exchange reserves have been declining due to a widening trade deficit, a decline in oil prices, and a lack of foreign investment. As of January 2023, the country's foreign exchange reserves stood at around $33 billion, which is equivalent to about 4.5 months of imports.
  2. Inadequate foreign exchange management: S&P expressed concerns over Nigeria's ability to manage its foreign exchange reserves effectively, citing a lack of transparency and a history of currency devaluations.
  3. Economic challenges: Nigeria is facing significant economic challenges, including a high debt burden, a large budget deficit, and a slow pace of economic growth.
  4. Political risks: S&P also highlighted political risks, including the potential for political instability and a lack of effective governance.

Impact: The downgrade is likely to have several consequences for Nigeria, including:

  1. Increased borrowing costs: The downgrade may lead to higher borrowing costs for Nigeria, as investors may demand higher interest rates to compensate for the increased credit risk.
  2. Reduced foreign investment: The downgrade may deter foreign investors from investing in Nigeria, as they may perceive the country as a higher credit risk.
  3. Currency devaluation: The downgrade may lead to a devaluation of the naira, as investors may lose confidence in the currency and seek to exit their positions.

Response from the Nigerian government: The Nigerian government has responded to the downgrade by announcing plans to implement measures to improve the country's foreign exchange management and economic stability. These measures include increasing foreign exchange earnings, reducing imports, and improving the country's debt management.

Overall, the downgrade by S&P is a significant development for Nigeria, and it highlights the need for the country to address its economic and financial challenges in order to restore investor confidence and improve its creditworthiness.