"Moody\u2019s cuts Nigeria\u2019s credit rating further into junk"

" Moody\u2019s cuts Nigeria\u2019s credit rating further into junk \r\nMoody\u2019s Investors Service has cut Nigeria\u2019s credit ratings further into the non-investment grade category, popularly known as \u201cjunk\u201d, just over three months after its last downgrade.\r\n\r\nThe global credit agency cut the Nigerian government\u2019s long-term foreign-currency and local-currency issuer ratings as well as its foreign currency senior unsecured debt ratings to Caa1 from B3 and changed the outlook to stable.\r\n\r\nAccording to Moody\u2019s, obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.\r\n\r\nMoody\u2019s has also downgraded Nigeria\u2019s foreign currency senior unsecured medium-term note programme rating to (P)Caa1 from (P)B3.\r\n\r\nThe latest rating action makes it harder for the country to tap international markets for funds. Moody\u2019s had in October last year downgraded the ratings of Africa\u2019s biggest economy to B3 from B2 and placed them on review for downgrade. The following month, another credit agency, Fitch Ratings, lowered the county\u2019s long-term foreign-currency issuer default rating to B- from B.\r\n\r\n\u201cMoody\u2019s expectation that the government\u2019s fiscal and debt position will continue to deteriorate is the main driver behind the rating downgrade,\u201d it said in a statement on Friday. \u201cThe government faces wide-ranging fiscal pressure while the capacity to respond remains constrained by Nigeria\u2019s long-standing institutional weaknesses and social challenges.\u201d\r\n\r\nAccording to Moody\u2019s, 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 has intensified, exacerbating the policy trade-off between servicing debt and financing other key spending items.\r\n\r\nIt said while the 2023 budget plans on an even larger fiscal deficit than in 2022, the government\u2019s funding options remain narrow and reliant on central bank financing.\r\n\r\nThe agency said the government\u2019s lack of access to external funding sources would add to the external pressure from depressed oil production and capital outflows, thereby eroding further the country\u2019s external profile over time.\r\n\r\n\u201cAt 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,\u201d Moody\u2019s said.\r\n\r\nIt said while a new administration could reinvigorate the reform impetus in Nigeria after the general elections planned for February 25, 2023 and thereby support fiscal consolidation, implementation would likely remain lengthy amid marked social and institutional constraints.\r\n\r\n\u201cIndeed, 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.\u201d\r\n\r\nMoody\u2019s has also lowered Nigeria\u2019s local currency (LC) and foreign currency (FC) country ceilings to B2 and Caa1 respectively, from B1 and B3 respectively.\r\n\r\nIt said 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.\r\n\r\n\u201cThe 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,\u201d it added.\r\n\r\nMoody\u2019s said the review for downgrade focused on Nigeria\u2019s fiscal and external position and the capacity of the government to address the ongoing deterioration \u2013 other than by alleviating the burden of its debt through any form of default, including debt exchanges or buy-backs.\r\n\r\nIt said fiscal pressure from falling oil production, the increasingly costly oil subsidy as well as rising interest rates would likely persist over the next couple of years, while a policy response post-election would likely take some time to put the country\u2019s fiscal position on a more sustainable path.\r\n\r\nAs a result, Moody\u2019s expects that the scope to finance core spending to support the country\u2019s social and economic development will remain constrained, with the service of debt increasingly coming at odds with other spending priorities.\r\n\r\nUnder its baseline scenario, the rating agency projects that interest payments will consume about half of general government revenue over the medium term, up from an estimated share of 35 percent in 2022 and that general government debt-to-GDP will continue rising to about 45 percent, up from 34 percent in 2022 and 19 percent in 2019.\r\n\r\n\u201cGovernment funding options are constrained, suggesting that the government will borrow at higher interest rates in 2023 at least and with heavy reliance on domestic debt, including continuing borrowing from the CBN,\u201d it said. \u201cThe financial sector remains underdeveloped relative to many of Moody\u2019s rated sovereigns globally, with the banking sector representing the main segment (36 percent of GDP in assets) and carrying already large on-balance sheet exposure to the government and the CBN (42 percent based on Moody\u2019s-rated banks).\u201d\r\n \r\n \r\n "

"Moody\u2019s cuts Nigeria\u2019s credit rating further into junk"

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