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S&P Cuts Nigeria Ratings As Low Oil Output Plagues Economy

oil rigs

Standard & Poor’s Global Ratings has further downgraded Nigeria’s sovereign credit rating to ‘B’, five levels below investment grade, citing a significant decline in oil production, restrictive forex policies, and delayed fiscal incentives.

S&P now expects Nigeria’s real GDP to contract by 1 percent this year, grow by 2 percent next year and resume a more solid growth of 4 percent “only from 2018”.

S&P’s downgrade comes as Nigeria plans to issue US$1 billion Eurobond this year, with all bids required to be placed by noon Nigerian time on Monday, September 19. The issue is part of a US$4.5-billion Federal Government Medium Term Note (FGMTN) program for 2016–2018.

Nigeria’s economy has suffered from lower crude prices, as oil sales are one of the country’s primary revenue sources. In addition, militant attacks on oil infrastructure have deprived it of significant part of oil production and its output has dropped by some 700,000 barrels per day to 1.56 million bpd.

S&P reckons that oil production may increase in the last quarter of the year amid the government negotiating with militants and sabotaged pipelines being fixed.

However, even if the notorious Niger Delta Avengers (NDA) agreed to a conditional ceasefire in August and agreed to halt hostilities later, other militant groups continue to attack pipelines. Just last week, a group that had refused to be part of the ceasefire attacked oil infrastructure in the Niger Delta.

On the positive side for Nigerian output, but on the negative side for the global oil glut, there are signs that Nigeria would raise its production. Exxon is reportedly ready to load its first Nigerian Qua Iboe crude since it declared force majeure on these exports in July, while Shell has lifted its force majeure on Bonny Light crude.

By Tsvetana Paraskova for Oilprice.com

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