By Andrew Onyejuruuwa
With the Coronavirus (COVID-19) pandemic still ravaging the entire globe including Nigeria where socio-political and economic aspects of almost every economy on a forced lockdown, Moody’s Investors Service, a rating agency has affirmed Nigeria’s ‘B2’ long-term issuer ratings and senior unsecured rating, its ‘(P)B2’ senior unsecured programme rating and maintained its negative outlook on Nigeria.
The agency, which has global reckoning however explained that the negative outlook is a reflection of the material downside risks to Nigeria’s credit worthiness, which it identified when the outlook on the country’s rating was changed to negative in December of 2019. Moody however noted that risks in the country have increased since then, exacerbated by the oil price shock and the financial and economic implications of the COVID-19 outbreak.
A statement the agency released to this effect said, “For Nigeria, these shocks amplify existing credit vulnerabilities both over the immediate and longer term. In the near term, the significant drop in oil revenues will reduce an already extremely low tax base, undermining fiscal strength. Combined with possible capital outflows, pressure on the fragile balance of payments may intensify, threatening external stability. In the longer term, the impact of the coronavirus on growth, particularly in the large informal sector, may weaken economic strength.
“The sovereign’s very low institutions and governance strength is likely to constrain the effectiveness of government measures to buffer the impact of the economic and financial shock. The risk of such stresses materialising is rising, while the negative outlook also encompasses longer-term challenges, downward pressure may materialise relatively early on in the outlook horizon,” it added.
It further stated that its affirmation of Nigeria’s B2 ratings also took into account the government’s relatively low debt burden in relation to the Gross Domestic Product (GDP), commensurately low annual borrowing requirements, its low external debt service needs over the next few years and the capacity of the large banking sector to absorb more government debt.
Moody added, “As a result of the oil price fall in the face of depressed oil demand and a slow supply response, Moody’s now assumes that oil prices will average $40-$45 per barrel in 2020, and $50-$55 by 2021, around $20 and $10 below previous expectations in each year. Risks to that forecast are firmly to the downside. Beyond 2021, Moody’s currently assumes that oil prices will return in a medium-term range of $50-$70 per barrel, as demand recovers and supply adjusts further.
