Moody’s, a renowned US-based rating agency, has recently adjusted Nigeria’s outlook from stable to positive, emphasising the country’s financial health and reform efforts led by President Bola Tinubu.
The agency confirmed the country’s ‘Caa1’ long-term foreign and local currency issuer ratings, considering the potential reversal of fiscal and external deterioration due to ongoing reform initiatives.
However, Moody’s highlighted persisting weaknesses, including Nigeria’s vulnerable fiscal and external positions, intensified inflationary pressures, and uncertainties surrounding oil production and external funding.
They cautioned about the challenging economic and social conditions in Nigeria, characterized by poverty, social disparities, and growing unrest due to inflation, which could impede or reverse the reforms.
President Tinubu’s administration has spearheaded various initiatives, such as the elimination of petrol subsidies announced during his inaugural speech in May 2023, unifying forex exchange segments by the Central Bank in June, and clearing FX backlogs in November.
“The affirmation of the Caa1 rating reflects Nigeria’s still weak fiscal and external position; the reform efforts may not be enough to improve its credit profile given Nigeria’s outstanding credit weaknesses,” the statement read.
“Increasingly high inflation generates spending pressure on the government and raises social risks, while the extent of fiscal relief from the removal of the oil subsidy remains unclear at this stage.
“Similarly, the outlook for oil production and external funding inflows remains key for any sustained improvement, but at this juncture remains uncertain.
“More broadly, policy coordination to fight inflation and preserve macroeconomic stability is hampered by institutional constraints, including the absence of reliable data that would support effective policy-making.”
Previously, Standard and Poor’s (S&P), another global rating agency, had upgraded Nigeria’s credit outlook from negative to stable following these reforms.
Despite these positive steps, Moody’s emphasised the need for continued policy coordination and institutional improvements to combat inflation and maintain economic stability, citing institutional constraints and data reliability issues.
The upgrade signifies a step forward but underscores the ongoing challenges that Nigeria must address to sustain and further enhance its credit profile.
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