Moody's - Nigeria's Deficit and Debt to Stay High After Coronavirus and Oil Shocks

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Monday, December 14, 2020 06:50 PM /by Moody's Investors Service/ Header Image Credit:  EcoGraphics


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  • Nigeria's economy has been severely hit by the coronavirus and oil price shocks
  • General government deficits to remain elevated over the next few years at 4%-5% of GDP

 

Nigeria's (B2 negative) credit profile reflects the country's increasing exposure to fiscal and external shocks because of its very weak government finances, which are constrained by an extremely narrow revenue base that hinders fiscal consolidation, Moody's Investors Service said in an annual report today.

 

"After this year's economic contraction, Nigeria's deficit will remain high and debt levels will continue to rise quickly, albeit from a moderate level," said Aurelien Mali, a Moody's Vice President - Senior Credit Officer and the report's co-author. "The country's weak institutions and governance framework also constrain the credit profile and have significantly affected both economic growth and the government's fiscal strength."

 

Additional credit challenges stem from the political risks around the conflict with Islamist militant group Boko Haram, potential attacks on oil infrastructure in the Niger Delta and growing income inequality.

 

On the other hand, Nigeria's credit strengths include its large and diversified economy, supported by substantial hydrocarbons resources and strong domestic demand in the medium-term. In addition, domestic capital markets are increasingly deep and diversified.

 

The negative outlook on Nigeria's sovereign rating means that a rating upgrade is unlikely in the short- to medium-term. The outlook would likely move to stable if Moody's were to conclude that the government's fiscal and economic policy response to the coronavirus pandemic is effective in mitigating rising fiscal and external vulnerability risks and limiting the pandemic's long-term negative economic and social implications.

 

A rating downgrade would be likely if Moody's were to conclude that the government is unlikely to be able to alleviate the damage to its revenue and its balance sheet, leading to rising liquidity and external risks to levels no longer compatible with a B2 rating.


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