Ratings agency, Moody’s Investors Service, yesterday upgraded its outlook on Nigeria to stable from negative and affirmed its long-term issuer and senior unsecured ratings at B2. The agency also affirmed the Nigerian government’s (P)B2 senior unsecured medium- term note programme rating.
“The change of outlook to stable reflects Moody’s expectation that higher oil prices and some measures taken by the government will help stabilize the sovereign’s credit metrics and support its external position,” the agency said in a note. It also explained that “the affirmation of the ratings reflects Nigeria’s significant credit constraints, balanced by some credit strengths supporting the B2 ratings.
The credit constraints include fiscal and external reliance on the hydrocarbon sector as well as its very weak institutional framework and governance, reflected in extremely low revenue generation. Susceptibility to event risk remains mainly driven by political risk.” Moody’s predicted that the ongoing improvements in the macroeconomy and the external position are likely to continue in the next few years, supported by the oil price environment, Nigeria’s new Petroleum Industry Act legislation and the opening of the Dangote refinery, which, according to the agency “will structurally reduce demand for US dollars.” In addition, Moody’s said it expects Nigeria’s fiscal deficit to narrow very slowly, with ongoing efforts to increase non-oil government revenue, even though weak governance and institutional capacity will likely hamper execution. “General government debt (including central bank funding and promissory notes) is projected to rise gradually, towards 35 per cent of GDP by 2025, stabilising above 400 per cent of revenue.
Projecting that Nigeria’s slow economic recovery is likely to continue over the next few years, Moody’s said it expects Nigeria’s economy to grow by 2.8 per cent in 2021 and by 3.5 per cent per year on average until 2025. “This economic recovery is mainly due to low base effects, but also to improved dollar liquidity which has been facilitated by higher oil prices and the support of International Financial Institutions (IFIs) such as the IMF. While growth prospects are better than pre-pandemic levels, they remain weaker than before the 2016 oil price shock and insufficient to significantly lift living standards given population growth,” the ratings agency stated.