Given its expectation that government debt and revenues will continue to deteriorate, global ratings firm Moody’s has downgraded Nigeria’s long-term foreign currency and local currency issuer ratings.
In its latest assessment, the global ratings agency also downgraded Nigeria’s senior unsecured foreign currency debt ratings to Caa1 from B3 and changed the outlook to stable.
Moody’s said it has also downgraded Nigeria’s senior unsecured foreign currency MTN program rating to (P)Caa1 from (P)B3, saying today’s rating action concludes the review for the downgrade initiated on October 21, 2022.
The rating firm indicates that the expectation that the government’s fiscal and debt position will continue to deteriorate is the main driver behind the rating downgrade.
“The government faces extensive fiscal pressure, while responsiveness remains constrained by Nigeria’s long-standing institutional weaknesses and social challenges.
“Ultimately, the risk of a negative feedback loop setting in the coming years between increased government borrowing needs and rising interest rates has intensified, exacerbating the policy trade-off between the service of the debt and the financing of other key expenses”.
He noted that the 2023 budget plan is linked to an even larger fiscal deficit than 2022, while the government’s financing options remain limited and dependent on central bank financing.
Furthermore, he stated that the government’s lack of access to external funding sources will add to the external pressure of depressed oil production and capital outflows, further eroding Nigeria’s external profile over time.
At this stage, immediate default risk is low, assuming there are no sudden and unexpected events, such as another shock or a change in policy direction that would increase default risk, the rating note states, adding that the perspective is stable.
“While a new administration could reinvigorate reform momentum in Nigeria after general elections scheduled for February 25, 2023 and thereby support fiscal consolidation, implementation is likely to drag on amid marked social and institutional constraints.
“In fact, the government has long held the goal of increasing non-oil revenue and phasing out the costly oil subsidy, but these goals require reforms that are institutionally, socially and politically difficult to carry out.”
Meanwhile, Moody’s said financing conditions are likely to remain tight. “The downgrade review focused on Nigeria’s fiscal and external position and the government’s ability to address continued deterioration, as well as alleviate its debt burden through any form of default, including debt swaps or repurchases. “, he explained. .
