Moody’s downgrades Nigeria’s Sovereign Issuer Rating

The Global Credit Rating Agency on Tuesday the 7th of November in New York downgraded the Sovereign Issuer rating of the Nigerian Government to B2. Highlights of the resolution from the credit committee meeting that was convened from the 2nd November to discuss the credit status from Nigeria are:

  • The authorities’ efforts to address the key structural weakness exposed by the oil price shock by broadening the non-oil revenue base have so far proven largely unsuccessful.
  • As a consequence, while debt levels remain contained and notwithstanding recent cyclical improvements, the government’s balance sheet remains structurally exposed to further economic or financial shocks, with interest payments very high relative to revenues and deficits elevated despite cuts in capital spending.

Lisa Villa, a Senior Analyst says “The stable outlook reflects the fact that the likelihood of a shock occurring that would further impair Nigeria’s economic and fiscal strength remains low, with external vulnerabilities having receded supported by the rebound in oil production, the current account projected to remain in surplus, and reserves boosted through external borrowings and increased foreign capital inflows. Medium-term growth prospects are also credit supportive.

Concurrently, Moody’s has lowered the long-term foreign-currency bond ceiling to B1 from Ba3 and the long-term foreign currency deposit ceiling to B3 from B2. The long-term local-currency bond and deposit ceilings remain unchanged at Ba1.”

The downgrade comes a few weeks after President Muhammad Buhari wrote a letter to the Senate President asking for an approval to to borrow $5.5bn for the purpose of refinancing capital spending projects in a supplementary budget move for 2017 fiscal year and also meet up with maturing government bond yields commitment. The proposed debt will raise Nigeria’s external debt level to $20.54bn. The statement was released hours after President Buhari delivered its 2018 appropriation bill to a joint session of the National Assembly where he proposed an an 8.6 trillion naira budget with a 2trillion naira deficit, and a projected 4.67 trillion naira non oil tax revenues from tax.The current B2 with a stable outlook is a three step to a junk downgrade, pairing Nigeria with Angola, Uganda, Portugal.





Kelvin Emmanuel

About Kelvin Emmanuel

The Oil producing Angola in the Southern part of Africa faces what Nigeria faced 12months ago; a distortion in its exchange rate with a difference between the official markets and the parallel black markets. One dollar through the official window buys you 166 kwanza, while one dollar through the black market buys you 400 kwanza. Nigeria faced the same challenge 12months ago, when the distortion between the official and black markets was as much as the official markets trading at 306 with the parallel market ranging from 450 through to 510. The Central Bank Governor of Angola, Jose de Massano Junior announced in Luanda “We will stop having a fixed foreign exchange, we will adopt a floating regime of foreign exchange”. Angola faces exactly the same challenges and has been applying the exact same responses to an exchange rate crisis like using its foreign reserves that was sitting at $26bn to defend the currency kwanza, with no success so far, even though the external reserves has dropped to $14bn. Angola relies on Oil receipts for 80% of its government revenue, 90% of its inflow and 50% of its GDP. Angola is a $194bn economy that has been growing at an average of 10% on the back of rising oil prices since 2002 when its 27 year old civil war that started in 1975 ended. The state national oil company Sonangol reports that it produces up to 1.8m barrels of crude oil daily, however the government that until now has being led by the family dynasty Jose Eduardo dos Santos until recently when succession saw power transferred to Joao Lourenco, reports that the oil price rout in 2015/2016 that saw prices drop to as low as $28 per barrel caused ripples across the economic structures of the government, upsetting government revenues, its ability to fund its budget, capital project funding, foreign direct investments into the economy as a result of a currency crisis that was driven by the widening of gap between the official and street window of the kwanza, that until now has been pegged in a fixed exchange rate regime to the US Dollar.