Moody’s Investor Service has further downgraded Nigeria’s rating as it credit rating agency it expects the government’s fiscal and debt position to worsen as the government grapples with far-reaching fiscal stress.

As the nation’s ability to weather the storm continues to erode from deep-seated institutional vulnerabilities and societal challenges, the agency now rates the country one notch lower at Caa1, sinking Nigeria deeper into its non-investment grade since the country’s earlier and worrying rating of B3. .

Last October, the rating agency downgraded Nigeria’s local currency and foreign currency Its long-term issuer ratings and foreign currency senior unsecured debt ratings were upgraded to B3 from B2 and placed on review for downgrade.

Moody’s has a stable outlook for the country, according to a statement issued on Friday. 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 also cut the country’s senior unsecured foreign currency MTN program rating to (P)Caa1 from (P)B3.

Caa-rated obligations are considered disreputable and subject to very high credit risk.

The latest sovereign rating echoes that of Fitch in November, which similarly cut Nigeria’s rating by one notch to B-, putting it six notches above default and on par with Angola and Ecuador.

“Ultimately, the risk of a negative feedback loop setting in over the next two years between increased government borrowing needs and rising interest rates has intensified, exacerbating the policy compromise between the debt service and the financing of other key expenses,” Moody’s said.

“The 2023 budget foresees an even larger fiscal deficit than 2022, while the government’s financing options remain limited and dependent on central bank financing,” it added.

The government’s inability to access financing outside its borders is seen as widening the gap created by subdued oil production and capital outflows. That will ultimately weaken Nigeria’s external profile over time, Moody’s said.

The agency estimates Nigeria’s immediate default risk to be low, assuming an abrupt event such as another shock or policy change does not occur that could strengthen default risk.

He expects the government’s interest payment obligation to absorb about 50 percent of revenue over the medium term compared with an estimated 35 percent share last year, just as he expects government debt to GDP to decline. shoot at around 45 percent from 34 percent. percent in 2022 and 19 percent in 2019.

“The prospect of oil production, as well as the securitization of past advances of the Central Bank of Nigeria (CBN) both remain uncertain. In particular, securitization would bring a degree of tax relief, but its legality is being challenged in Parliament and its approval is uncertain,” he said.

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“As a result, fiscal consolidation depends mainly on raising the level of non-oil revenue, which at the general government level has so far recovered to levels last seen in 2014 after successive shocks.”

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