Moody’s Investors Service has downgraded Nigeria’s rating further as the global credit ratings agency expects the government’s fiscal and debt position to worsen as the government grapples with far-reaching fiscal strain.
As the nation’s capacity to weather the storm remains eroded by deep-seated institutional vulnerabilities and social challenges, the agency now rates the country a level lower at Caa1, sinking Nigeria deeper into its non-investment grade from the country’s previous and worrisome rating of B3.
Last October, the ratings agency downgraded Nigeria’s local currency and foreign currency long-term issuer ratings as well as its foreign currency senior unsecured debt ratings to B3 from B2 and placed them on review for downgrade.
Moody’s has a stable outlook on the country, a statement issued on Friday said. But the latest rating also reflects the Nigerian government’s long-term foreign-currency and local-currency issuer ratings as well as its foreign currency senior unsecured debt ratings. The firm equally cut the country’s foreign currency senior unsecured MTN program rating to (P)Caa1 from (P)B3.
Obligations that are rated Caa are considered to be of poor standing and are subject to very high credit risk.
The latest sovereign rating echoes the one by Fitch in November, which similarly lowered Nigeria’s rating by one level at B-, placing it six notches above default and on par with Angola and Ecuador.
“Ultimately, the risk that a negative feedback loop sets in over the next couple of years between higher government borrowing needs and rising interest rates has intensified, exacerbating the policy trade-off between servicing debt and financing other key spending items,” Moody’s said.
“The 2023 budget plans on an even larger fiscal deficit than in 2022, while the government’s funding options remain narrow and reliant on central bank financing,” it added.
The government’s inability to access funding outside its shores is seen widening the gap created by subdued oil production and capital outflows. That ultimately will weaken Nigeria’s external profile with the passage of time, Moody’s said.
The agency estimates Nigeria’s immediate default risk to be low, assuming no abrupt occurrence like another shock or policy shift that could strengthen the default risk.
It envisages that the government’s interest payment obligation will take approximately 50 per cent of revenue over the medium term compared to an estimated share of 35 per cent last year just as it expects government debt-to-GDP to soar to around 45 per cent from 34 per cent in 2022 and 19 per cent in 2019.
“The oil production outlook as well as the securitization of past advances from the Central Bank of Nigeria (CBN) both remain uncertain. In particular, the securitization would bring a degree of fiscal relief but its lawfulness is being contested in Parliament and its passage uncertain,” it said.
“As a result, fiscal consolidation primarily hinges on raising the level of non-oil revenue, which at the general government level has so far bounced back to levels last witnessed in 2014 after successive shocks.”
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