Moody’s Downgrades Nigeria’s Rating to B3 Over Sharp Fall in Revenue

By Aduragbemi Omiyale

Nigeria’s rating has been downgraded to B3 from B2 by Moody’s Investors Service due to a “significant deterioration” in the country’s revenue despite an improvement in crude oil prices, the nation’s main source of earnings.

In a rating report released on Friday, the agency said the downgrade affects Nigeria’s local currency and foreign currency long-term issuer ratings as well as its foreign currency senior unsecured debt ratings.

The firm also said it had placed the ratings on review for downgrade.

“Concurrently, Moody’s downgraded Nigeria’s foreign currency senior unsecured MTN rating to (P)B3 from (P)B2, also and placed it on review for downgrade,” the report obtained by Business Post stated.

Moody’s said the initiation of the review for downgrade is prompted by the risk that the ongoing fiscal and external deterioration accelerates, further weakening the government’s capacity to service debt and thereby increasing its risk of default.

The company said the sharp fall in revenue would exert more pressure on the sovereign credit profile of the country, which prides itself as the largest economy in Africa despite a strong increase in international crude oil prices in 2022.

“Moody’s assessment is that these developments are partly the result of weak governance and likely to last. The steep fall in oil production in 2022 and the extension of the expensive oil subsidy have almost entirely eroded the boost to government revenue and exports that would otherwise have been anticipated from higher oil prices.

“Policy levers available to manage weaker oil revenue and rising borrowing costs amid monetary tightening in Nigeria and globally are limited. Similarly, on the external front, the capacity of the Central Bank of Nigeria (CBN) to protect foreign exchange reserves from external outflows has its limits,” the report said.

Concurrently, Moody’s has lowered Nigeria’s local currency (LC) and foreign currency (FC) country ceilings to B1 and B3, respectively, from Ba3 and B2.

But it noted that while it reviews the rating, it would focus on understanding the Nigerian authorities’ strategy to address both domestic and external pressure and assessing the associated default risk for the government’s private creditors.

It expressed concerns over the comments made by the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, last week that the federal government would consider restructuring the debts by seeking a repayment extension, including through potential bond buybacks or exchanges, which Moody’s said could “constitute a distressed exchange” under its default definition.