Moody’s affirms Nigeria’s B2 ratings, maintains negative outlook

Moody’s Investors Service has reaffirmed Nigeria's B2 ratings while maintaining a negative outlook due to the unprecedented credit shock caused by the rapid spread of the coronavirus outbreak and the oil price shocks. In a recent interview with CNBC Africa, Aurelien Mali, Vice President and Sovereign Analyst at Moody’s, highlighted the significant challenges facing Nigeria's economy in the wake of the global economic slowdown. Mali pointed out that the pandemic and the plummeting oil prices have had an immediate negative impact on Nigeria, leading to a loss of revenue and export receipts. Despite the challenges, Mali noted that Nigeria has certain strengths that influenced Moody’s decision to affirm the B2 rating. One key advantage is the country's relatively small debt service on the external side for the next few years, thanks to a favorable debt structure. Additionally, Mali mentioned that Nigerian banks have the capacity to absorb more government securities, and the government has begun implementing policy responses to mitigate the economic impact. One of the measures taken by the Nigerian government is adjusting the exchange rate and revising the budget assumption from $57 per barrel to $30 per barrel, reflecting the current oil price environment. Support packages from international partners are also in the pipeline to assist Nigeria during these challenging times. However, Mali emphasized that Moody’s still maintains a negative outlook for Nigeria, expressing concerns about the country's credit vulnerability. Nigeria's general government revenue is already at an extremely low level, making it susceptible to external shocks such as the sharp decline in oil prices. With oil revenue accounting for 50% of the general government revenue, every $10 per barrel decrease translates to a loss of $3 to $3.5 billion in government revenue. The looming increase in the general government deficit is a cause for worry, as it will lead to a deterioration of credit metrics due to the lower revenue base. Mali pointed out that while liquidity issues are not imminent thanks to the debt structure and the government's ability to rely on the central bank for funding, there are clear weaknesses in the foreign portfolio of the central bank certificate and the current account deficit. Looking ahead, Mali highlighted the vulnerability in Nigeria's foreign exchange reserves, which stood at $35 billion at the end of last month. The declining reserves, coupled with potential capital outflows from foreign portfolio investors, could further strain the country's economic situation. Despite the challenges, Mali mentioned that external support packages from international partners will be crucial in safeguarding Nigeria's reserves. In conclusion, Nigeria faces a challenging road ahead as it navigates the dual impact of the COVID-19 pandemic and the oil price shocks. Moody’s warning about the negative outlook underscores the importance of swift and decisive policy responses to mitigate the economic fallout and safeguard the country's financial stability.