Fitch Ratings lowered Nigeria’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘B-’ from ‘B’ amid increasing debt service pressures on government finances and worsening external liquidity at a time fellow oil-producing nations are capitalising on an oil price rally.

IDRs point to an entity’s relative susceptibility to default on financial obligations, with ‘B’ ratings (often described as “highly speculative”) showing material default is present, but a limited margin of safety exits. ‘B-‘ is a level lower than ‘B’.

“Low oil production and the expensive subsidy on petrol have consumed most of the fiscal benefit of high oil prices in 2022,” New York-based Fitch said in a rating action commentary issued Friday. It sees Nigeria’s multi-decade low oil output continue to pressure already depressed government revenue levels further.

Nigeria’s ‘B-‘ rating is six notches above default and now places at the same level with Africa’s closest oil-producing rival Angola and Ecuador. The rating agency’s outlook for Nigeria is stable.

The Nigerian Government is on the path of turning not less than N20 trillion credit it owes the central bank to bonds repayable over four decades as it seeks a longer time to meet its financial obligations.

Minister of Finance Zainab Ahmed has said holders of the country’s Eurobond are not part of the proposal to elongate the duration of current debts.

“If implemented, subsidy reduction in 2023 would benefit public finances, but constrained oil production and structurally low domestic non-oil revenue mobilisation will limit potential gains,” Fitch said.

The rating agency foresees that petrol subsidy spending will cost the government about N5 trillion (2.4 per cent of GDP) in foregone revenue from NNPC Limited this year, helping to widen the general government fiscal shortfall to 6.1 per cent of GDP.

The spread between regulated pump price of petrol averaging N190 a litre and the cost of importation, averaging N300 per litre is to trigger the foregone revenue, it added.