Nigeria, 15 others put sovereign downgrades at new record

The creditworthiness of nations as judged by one of the world’s largest rating agencies has deteriorated at a record pace in the first six months of the year.

Fitch Ratings has downgraded 14 sovereign borrowers so far in 2016, including the United Kingdom, citing falling oil prices, a stronger United States dollar and Britain’s exit from the European Union.

The decline highlights the sensitivity to geopolitical shocks felt by the world economy as a result of sluggish growth and rising debts, according to aFinancial Times report

Fitch attributes the scale of downgrades in large part to lower commodity prices, noting that borrowers in the Middle East and Africa account for more than half of its 15 negative rating actions. However, it added that the significance of the UK’s exit from the EU was “difficult to overstate.”  “The short-term economic impact of the Brexit referendum will be decidedly negative in the UK,” the Global Head of Sovereign Ratings, Fitch, James McCormack, said, adding that the ramifications of the vote would spread beyond the country’s borders.

“Europe’s political backdrop could have negative implications for sovereign ratings … Comparatively high government debt levels are observed in several eurozone sovereigns, and are likely to remain effective rating constraints.”

Following the referendum, rival rating agency, S&P, also cut the UK’s rating, stripping it of its final triple A grade and predicting the country would “barely escape” recession.

So far this year, S&P has downgraded 16 sovereigns — a half-year figure only exceeded once, at the height of the eurozone crisis in 2011. Moody’s has downgraded 24, compared with 10 at the same point last year.

The role of credit rating agencies has been questioned in recent years, with some accusing them of biased ratings and irrelevance. However, their decisions remain crucial to investors subject to mandates that determine what sort of assets they can own.

“I see parallels between the downgrades in peripheral Europe during the eurozone crisis and what is happening in emerging markets right now,” an emerging market strategist at UBS, Bhanu Baweja, said.

“It’s a very strange time — the credit is undoubtably weakening but investors are still crowding in because there are so few places to find positive yields.”

Source: Punch.ng