LONDON, February 24 (Fitch) The suspension of Central Bank of
Governor Lamido Sanusi and the market reaction to it are the
first major test of
the more credible macro policy regime Sanusi helped establish,
Sanusi's unexpected suspension does not significantly alter
fundamentals. But it triggered a sharp naira sell-off and a rise
in naira bond
yields. If sustained, this will increase inflationary pressure,
making it more
likely that the monetary policy committee on 24-25 March will
tightening, including a possible rise in interest rates. Senior
including Acting Governor Sarah Alade, have reiterated the CBN's
of preserving exchange rate, price and financial stability.
Governor Sanusi's suspension followed his strident attacks on
leakage as it passed through state oil company NNPC on its way
to the budget
Federation Account. Further evidence of poor transparency and
weak control in
the oil sector prompted the inance minister to call for a
forensic audit of oil
accounts at a Senate hearing this month. It is credit positive
that these issues
are increasingly in the public domain, and that the political
will to address
them in some quarters has increased.
The failure of Nigeria's international reserves, including the
Crude Account (ECA), to rise while oil prices are high has been
weakness in the sovereign credit profile. International reserves
falling since last April and were USD41.2bn in the month to
equivalent to 5.6 months of gross current account payments at
end-2013, but are
not overly large for a country as dependent on oil revenue as
Nigeria. A larger
cushion would be positive for the credit profile.
Progress on broader structural reforms remains mixed. The
Bill, uncertainty regarding which has caused new investment to
stalled. One of its provisions would be to break up NNPC and
transparency to the oil sector, which would be credit positive.
The decision to put an additional USD550m into Nigeria's
sovereign wealth fund
for investment in electricity is positive, although the fund is
too small to act
as a buffer against shocks. Meanwhile, electricity reforms
continue, although a
significant rise in production remains some way off.
Agricultural reforms are
The budget is still in the National Assembly but is being
despite concerns that passage would be hostage to pre-election
(elections are due in February 2015). It retains a conservative
assumption and more realistic capital spending projections.
assumptions remain ambitious, however, to judge from recent
outturns. The ECA
balance was less than USD2.5bn, according to the CBN's most
recent MPC minutes.
This reduces the risk of an overly stimulative fiscal stance
that would increase
the debt burden, which remains low, at around 20% of GDP.
However, the low ECA and dwindling international reserves also
mean the cushion
against shocks is being depleted. Intervention to support the
naira will have
led to further depletion last week and the trend is likely to
continue, with the
current account surplus gradually eroding and political risks
likely to weaken
the capital account.
We affirmed Nigeria's rating at 'BB-' with a Stable Outlook in
October 2013. The
next review is scheduled for 11 April.
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The above article originally appeared as a post on the Fitch
Wire credit market
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