Nigeria’s Balance Sheet Remains Exposed to Further Shocks – Moody’s

Barely one month after one of the global rating agencies, Moody’s Investors Service, downgraded Nigeria’s sovereign debt rating, the agency said the country’s balance sheet remains exposed to further shocks.

Moody’s had on November 8 downgraded Nigeria’s long-term issuer and senior unsecured debt rating to ‘B2’ from ‘B1’. The Federal Government, however, rejected the rating.

As a follow-up to the earlier rating, Moody’s on Monday released its annual credit analysis report, stating that Nigeria’s ‘B2 stable’ credit profile was constrained by the continued exposure of the sovereign balance sheet to shocks, weak institutions and elevated deficits.

In a statement by the rating agency, the Vice-President/Senior Credit Officer, and co-author of the report, Aurélien Mali, was quoted as saying, “Only a durable increase in non-oil revenue will improve Nigeria’s resilience to Oil price volatility and increase the realisation rates of capital spending on the large infrastructure projects that are crucial for Nigeria’s economic development.

“Until it does, the Government’s balance sheet will remain exposed to further shocks. Deficits will remain elevated and debt affordability will remain challenged. This exposure will persist, despite recent improvements in the economy, which are primarily cyclical and related to the strengthening of the Oil sector.”

According to Moody’s, Nigeria’s economy continues to adjust to the loss of more than 50 per cent of its foreign currency earnings. The report read in part, “The continuing recovery in Oil production underpins Nigeria’s more robust medium-term prospects. With a rebalanced economy, Moody’s anticipates that a further consolidation of Nigeria’s economic fundamentals will strengthen the recovery, with real growth of 3.3 per cent in 2018 and 4.5 per cent in 2019.

The rating agency noted that the sharp decline in oil prices from mid-2014 severely weakened Nigeria’s public finances. It said the general Government revenue halved to 5.3 per cent in 2016 from 10.5 per cent of the Gross Domestic Product in 2014. Since late 2015, Moody’s said the Nigerian authorities had stepped up efforts to increase non-oil revenue in response to a significant deterioration in public finances.

The report further read, “Moody’s projects a general Government budget deficit of 3.6 per cent of the GDP in 2017, down from 4.7 per cent in 2016. In 2018, the deficit will decline only slightly, to 3.2 per cent of GDP, comprising a two per cent of GDP, Federal Government budget deficit and around one per cent of the GDP deficit at the State and municipality levels, as well as arrears that are likely to be split between the three levels of Government.

“Nigeria’s moderate susceptibility to event risk in part reflects the waning of Niger Delta insurgency and the return of alert levels to minimum levels.”

The rating agency, however, noted that the President Muhammadu Buhari administration had sent strong signals that the “business as usual” environment was over, adding that there was greater transparency and accountability, as well as resolve to fully implement the rule of law. According to it, the Government has also made significant gains in terms of governance and transparency in the Oil sector.

“There has been also no further build-up of arrears on cash calls in joint ventures in 2017 beyond those recorded previously, which sends a strong positive signal to international oil companies present in Nigeria,” it added.


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