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Moody’s Downgrades Nigeria’s Ratings Over High Fiscal Deficit


By Modupe Gbadeyanka

Nigeria’s long-term foreign-currency and local-currency issuer ratings, as well as its foreign currency senior unsecured debt ratings, have been downgraded by Moody’s Investors Service to Caa1 from B3.

In a statement over the weekend, the rating agency said it has also downgraded Nigeria’s foreign currency senior unsecured MTN program rating to (P)Caa1 from (P)B3.

The company said Nigeria’s ratings were lowered due to its belief that the government’s fiscal and debt position will continue to deteriorate as it faces wide-ranging fiscal pressure, with the capacity to respond remaining constrained by the country’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,” a part of the statement said.

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It further stated that, “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.”

“In addition, 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,” Moody’s said.

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In the report, Moody’s put Nigeria’s outlook at stable, noting that while a new administration could reinvigorate the reform impetus in the country after the February 25 presidential election, 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, funding conditions are likely to remain tight,” it noted.

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Also, Moody’s has lowered Nigeria’s local currency (LC) and foreign currency (FC) country ceilings to B2 and Caa1 respectively, from B1 and B3 respectively.

The LC country ceiling at B2 remains two notches above the sovereign issuer rating, incorporating some degree of unpredictability of government actions, political risk and the reliance on a single revenue source.

The FC country ceiling at Caa1 remains two notches below the LC country ceiling, reflecting significant transfer and convertibility risks given the track record of imposition of capital controls in times of low oil prices or falling oil production.

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