The international rating agency Standard & Poor’s (S&P) has downgraded the Nigerian economy ahead of Saturday’s general elections. It is another blow for the country which has struggled with the sharp drop in oil prices and the geopolitical risks it faces from the radical militant group Boko Haram.
With the rating dropping to B+ from BB- the rating agency affirmed its negative outlook and indicated the possibility of further downgrades. S&P said it expects Nigeria to run a current account deficit on an average of 1.8 per cent of gross domestic product for the three-year period until 2018, significantly lower than its earlier assumption of a 3.3 per cent surplus.
S&P notes that the problem is that the oil and gas sector account for about 70 per cent of Nigeria’s fiscal revenue and more than 90 per cent of its exports and that the decline of the oil price has significantly impacted the current account position. Additionally, the drop in the oil price also brought down the county’s currency at 18 per cent against the dollar, making it the second-worst performing African currency monitored by Bloomberg over the past six months.
“In our view, the decline in oil prices in the last seven months has significantly affected Nigeria’s external position and external vulnerability,” S&P said in a statement at the announcement of the downgrade.
Political risks also maintain the negative view. Chiefly, President Goodluck Jonathan originally announced Nigeria’s elections were to be held on 14 February, but were pushed forward six weeks to 28 March amid security concerns and threats from Boko Haram. The nation’s military could not spare the soldiers to safeguard the election and protect voters, particularly in the northeast, where a six-year insurgency by the militant group has seen thousands of civilians killed. Additionally, the election is also expected to be one of the most closely contested since civilian government was introduced in 1999 as President Jonathan faces former military ruler Muhammad Buhari.
Even though Nigeria has taken precautions to deal with the effects of the falling oil prices, which includes a conservative 2015 budget and monetary policy, S&P remains concerned that the volatile political environment could undermine these efforts.
“The tightly contested general elections and potential underperformance on oil production may pose risks to the implementation of the federal economic management team’s proactive and ambitious fiscal consolidation plans,” S&P said.