Moody’s identifies constraints, strengths to Nigeria’s credit profile

Central Bank of Nigeria (CBN)
Central Bank of Nigeria (CBN)

Nigeria’s credit profile is constrained by the continued exposure of the sovereign balance sheet to shocks, weak institutions and elevated deficits, Moody’s Investors Service has said.

According to the rating agency’s annual report, Nigeria’s credit strengths include the large size of its economy and robust medium-term growth prospects supported by its domestic demand.

The report, released on Tuesday, however suggested that the country would need to seek additional sources of revenue from the non-oil sector to augment its oil revenue.

The organisation had in an earlier report put Nigeria on B2 (stable) even as it downgraded eight of the nation’s major banks.

The new report, titled “Government of Nigeria — B2 stable, Annual credit analysis”, is an update to the markets, it said.

“Only a durable increase in non-oil revenue will improve Nigeria’s resilience to oil price volatility and increase the realisation rates of capital spending on the large infrastructure projects that are crucial for Nigeria’s economic development,” said Aurélien Mali, Moody’s Vice President — Senior Credit Officer and co-author of the report.

“Until it does, the government’s balance sheet will remain exposed to further shocks. Deficits will remain elevated and debt affordability will remain challenged,” he added.

Mr. Mali explained further that the exposure will persist, despite recent improvements in the economy, which are primarily cyclical and related to the strengthening of the oil sector.

Nigeria’s economy continues to adjust to the loss of more than 50 per cent of its foreign-currency earnings, the report said, adding that the continuing recovery in oil production underpins Nigeria’s more robust medium-term prospects.

With a rebalanced economy, Moody’s anticipates that a further consolidation of Nigeria’s economic fundamentals will strengthen the recovery, with real growth of 3.3 per cent in 2018 and 4.5 per cent in 2019.

The nation ranks near the bottom of many international surveys assessing institutional strength and its scores are among the weakest within Moody’s rated universe.

Moody’s report projects a general government budget deficit of 3.6 per cent of GDP in 2017, down from 4.7 per cent in 2016.

In 2018, the deficit will decline only slightly, to 3.2 per cent of GDP, it added. This will comprise a 2 per cent of GDP federal government budget deficit and around 1 per cent of GDP deficit at the state and local government levels.

Nigeria slipped into recession in 2016, following a sharp decline in oil revenue. It however recovered in September, after five consecutive contractions.


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