FITCH RATINGS ASSIGNS NIGERIA BB MINUS RATING:

UNCLAS ABUJA 000321 SIPDIS SIPDIS E.O. 12958: N/A TAGS: EFIN ECON NI SUBJECT: FITCH RATINGS ASSIGNS NIGERIA BB MINUS RATING: OUTLOOK STABLE ¶1. SUMMARY. The Government of Nigeria (GON) received a BB Minus rating, which is just below investment grade from the highly respected Fitch Ratings. The rating was in part based on the recent agreements reached with the Paris Club (PC),but at this time the GON has no intentions of seeking access to the international financial markets. End Summary. ¶2. On January 31, 2006 Fitch Ratings, a highly respected international rating agency in the securities markets, assigned the Government of Nigeria (GON) a Long Term foreign and local currency rating of "BB MINUS-". Fitch Ratings was the first to introduce the familiar ratings scale (AAA to D) that is used today. They are very well known and their reporting is taken very seriously in the financial markets. For the GON, this is somewhat of a vindication of the economic and financial reforms efforts being made in the past few years for the reforms under the present leadership of President Olusegun Obasanjo. It will give the GON greater and more favorable access to the international securities markets. ¶3. The specific ratings are as follows Foreign Currency Long Term Issuer Default Rating (IDR): BB- Short Term IDR: BB- Outlook: Stable Local Currency Long term IDR: BB- Outlook: Stable Country Ceiling BB- Brady Par Bond BB ¶4. The best rating category is "Investment Grade" (AAA to BBB),which has the lowest expectation of credit risk and is assigned where there is exceptionally strong capacity for payment of financial commitments. The next rating category, BB and below, is the beginning of "Speculative Grade", with BB Minus, just a notch below. The GON's rating, BB MINUS, indicates that there is a possibility of credit risk developing, but business or financial alternatives may be available to allow financial commitments to be met. Other countries in this category are Brazil, Indonesia, Iran, Lesotho, Turkey and Ukraine. ¶5. Finance Minister, Dr. Ngozi Okojo-Iweala invited Fitch Ratings to do an assessment of Nigeria based on the GON's commitment to economic reforms, improving governance, and the agreements reached with the Paris Club (PC) in 2006, that cleared USD 30.9 billion of foreign debt. Indeed, the improved standing that the debt deal brings inspired the GON to seek a sovereign debt rating, whereas they had declined USG and UN financial assistance for a sovereign debt rating in past years. ¶6. The rating was affected by decades of economic mismanagement and political volatility that will take many years to overcome. Macroeconomic stability remains fragile, and further structural reforms will be necessary to reduce poverty and to raise living standards. Social unrest in the oil producing Niger Delta requires that a larger share of the oil wealth be used to address poverty, lack of social infrastructure, and environmental degradation. The political tensions and uncertainty as to President Obasanjo's intention to seek a third term as president are a factor. ¶7. The current credit outlook has been rated as stable as long as the economic reforms and high oil prices continue, making it a perfect backdrop which over time improves the GON's credit rating. Other good signs are the sizable oil and gas reserves and credible plans to increase output. The GON has made a strong commitment to structural reform, anti- corruption, and measures to strengthen transparency and accountability. In addition, on February 6, 2006, Standard and Poor's, another highly respected global credit rating agency, rated GON as BB Minus for Long Term foreign currency, BB for local currency and a stable outlook for the future. Their assessment is supported by the same background information that was contained in Fitch Ratings. All of which should allow Nigeria a more favorable access to the international security markets. With Nigeria's high interest rates, its debt will be attractive to those seeking higher yields. In the short term the main risk is currency risk, but at least for now the Nigerian Central Bank has consistently supported a strong currency, intervening to maintain or even increase the naira's strength against the U.S. dollar. At the moment, the GON does not appear to be inclined to seek access to international markets. CAMPBELL