Moodys Downgrades Nigeria Over Rising Debt

Over its expectation that government debt and revenue will continue to deteriorate, global rating firm, Moody’s, has downgraded Nigeria’s long-term foreign-currency and local-currency issuer ratings.

In its latest assessment, the global rating agency also lowered Nigeria’s foreign currency senior unsecured debt ratings to Caa1 from B3 and changed the outlook to stable.

Moody’s said it has also lowered Nigeria’s foreign currency senior unsecured MTN program rating to (P)Caa1 from (P)B3, saying today’s rating action concludes the review for downgrade initiated on 21 October 2022.

The rating firm indicates an expectation that the government’s fiscal and debt position will continue to deteriorate is the main driver behind the rating downgrade.

“The government faces wide-ranging fiscal pressure while the capacity to respond remains constrained by Nigeria’s long-standing institutional weaknesses and social challenges.

“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 have intensified, exacerbating the policy trade-off between servicing debt and financing other key spending items”.

It noted that 2023 budget plan is laced with an even larger fiscal deficit than in 2022, while the government’s funding options remain narrow and reliant on central bank financing.

In addition, it stated that the government’s lack of access to external funding sources will add to the external pressure from depressed oil production and capital outflows, thereby eroding further Nigeria’s external profile over time.

At this stage, immediate default risk is low, assuming no sudden, unexpected events such as another shock or shift in policy direction that would raise the default risk, the rating note stated, adding that the outlook is stable.

“While a new administration could reinvigorate the reform impetus in Nigeria after the general elections planned for 25 February 2023 and thereby support fiscal consolidation, implementation will likely remain lengthy amid marked social and institutional constraints.

“Indeed, the government has long-held the aim of raising non-oil revenue and phasing out the costly oil subsidy, but these objectives necessitate reforms that are institutionally, socially and politically challenging to carry through”.

Meanwhile, Moody’s said funding conditions are likely to remain tight. “The review for downgrade focused on Nigeria’s fiscal and external position and the capacity of the government to address the ongoing deterioration – other than by alleviating the burden of its debt through any form of default, including debt exchanges or buy-backs”, it explained.