Nigeria dodges Fitch downgrade but Angola faces one-notch cut ahead of Eurobond sale

By bne IntelliNews September 28, 2015

The sharp decline in oil prices have marred the economies of Africa’s two largest oil producers, but while Nigeria surprised many by avoiding a downgrade by Fitch, Angola dipped further into the junk category ahead of a planned $1.5bn Eurobond issuance.

On September 25, Fitch lowered Angola's long-term foreign and local currency Issuer Default Ratings (IDRs) to B+ from BB- with stable outlook, while Nigeria’s IDRs were kept at BB- with negative outlook.

Angola's ratings were cut because of rising government debt (seen jumping to above 40% of GDP in 2015 from 23.1% in 2013), a large current account deficit (projected at 7.7% of GDP in 2015), falling reserves (forecast at 5.6 months of import cover by end-2015) and weakened growth (seen at about 3% in 2015 versus nearly 5% per year between 2011 and 2014). However, Fitch praised the authorities' timely response to the oil price shock, including tightening monetary and fiscal policy and allowing the exchange rate to devalue by 25% since January, saying that these actions have contributed towards the stable outlooks.

The low oil price environment has brought similar problems to Nigeria, but its key debt metrics remained relatively favourable partly thanks to unorthodox government measures to maintain the value of the local naira currency and spare foreign reserves. Fitch praised the improved political stability after the elections, but advised that the extended absence of a cabinet has caused delays in implementing economic policy, which has dented credibility, whereas significant uncertainty remains, particularly around the currency. It warned that a cut is possible in case of a policy response to lower oil prices that undermines growth prospects, public finances or external stability, a loss of foreign exchange reserves or an increase in government debt-to-GDP ratio, and/or a reversal of key structural reforms and anti-corruption and transparency measures.

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