Moody’s investor service, a bond credit rating corporation, has downgraded Nigeria’s local currency and foreign currency long-term issuer ratings to B3 from B2 and has also lowered its rating on the country’s foreign currency senior unsecured debt ratings to B3 from B2, placing both ratings on review for further downgrade. According to Moody, the severe decline in the government’s financial condition and its external position were the primary factors that led to the downgrading of the rating.
Additionally, Moody asserts that said financial and capital outflows from Nigeria exceed its current account surplus. He attributed the review for downgrade to 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 corporation ranks the creditworthiness of borrowers using a standardized rating scale which measures expected investor loss in the event of default and rates debt securities in several bond market segments.
Current government bond rate is predicted to rise.
Speaking on the report, Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, said; converting the Central Bank of Nigeria’s (CBN) Ways and Means (W&M) to a 40-year bond is part of the factors contributing to the challenges in Nigeria. He explains that oil sales generate zero revenue, which is the primary cause of the low sovereign rating. The Nigerian National Petroleum Company Limited has pursued an unverifiable under-recovery payment in a direct sale direct purchase (DSDP) programme at a time when oil prices worldwide have risen due to geopolitical instability.
Emmanuel predicts that Federal Government bond rates will rise from their current average of 13% to 17-20% as investors price inflation into the yield curve and hedge default risk. B3 is a not-primed issuer rating, putting it in the lowest investment grade, four levels above trash. He argues that the Buhari administration’s fiscal strategy, which relies on loans that raise the debt servicing to government revenue ratio and violate CBN Act section 38 (3), is an institutional risk that could raise Nigeria’s credit default swap from 990 basis points while also debasing the currency.
The country is unable to benefit from increasing oil prices.
While referring dates back, Emmanuel claimed that in 2006, at 8.2 percent inflation and 6.1 percent GDP growth, it would take 8.7 years to double the inflation rate and devalue the currency by 100 percent and 11.6 years to double the GDP by 100 percent, which was the basis on which Dr Ngozi Okonjo-Iweala rebased Nigeria’s GDP in 2011. Presently, at a 20.77 percent inflation rate and 3.54 percent GDP growth, it would take 3.4 years to double the inflation rate and devalue the currency by 100 percent. Nigeria’s GDP doubled to 20.3, a shred of solid evidence that the nation has degraded.
Moody’s said Nigeria, as an OPEC member, hasn’t benefited from rising international crude-oil prices. He said the dramatic reduction in oil output in 2022 and the prolongation of the costly oil subsidies have almost entirely offset the boost to government income and exports that would otherwise have been expected from higher oil prices. Jide Pratt, an oil and gas professional, in his remarks, said the downgrade is based on their forecast of the fiscal policy and FX crisis. Due to the availability concerns, investor trust and exchange rate for completing these deals are deteriorating.
Nigeria needs to take necessary measures to boost the economy.
He said the CBN’s priority is fostering an atmosphere encouraging foreign direct investments (FDIs) to revive the economy rapidly. Ultimately, Emmanuel concludes that the Nigerian government faces risks that could have far-reaching negative consequences for the economy unless it changes course, amends the finance act to raise the revenue-to-GDP ratio from the current 7%, adopts widespread cost-cutting measures, follows recommendations on stopping the PMS subsidy, and adopts a free-floating exchange rate mechanism.
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It’s high time we revive our economy back to its standard and we n3d to amen our finance act and also adopt a free flowing excahe rate system to uplift our economy.
I don’t know when we are going to get our fiscal and money policies right. It is getting exhausting at this point. Our bonds are already fallen. Strong measures should be taken to revive this economy.
Our bond are fallen we need to improve our economy the necessary step need to be take it revive things so everything can be normal. Amend of our finance act is important
Truthfully, FG needs to take necessary measures to boost the economy. Anything that would bring negative consequences on the economy should be taken away and they should adopt a free-floating exchange rate mechanism should be encouraged.
Our economy level alone is a prove that its heading towards slump. Necessary authorities needs to devise a counter measure to save the bond rate.
This current administration is a curse to Nigerian. They have created a financial lacuna that will be difficult to cover in generations. This is what Tinubu want to continue with.
Severe decline in the government’s financial condition and its external position were the primary factors that led to the downgrading of the rating. The review for downgrade to the risk that the ongoing fiscal and external deterioration accelerates.
All the policy and program of this present government has not been favourable to the economy and the citizens at large.
All we need is to boost our economy system. Government have a lot of work to do.
Nigeria’s current account surplus is exceeded by the country’s financial and capital outflows. the study for downgrading is based on the possibility that the already-existing fiscal and external deterioration would quicken, further reducing the government’s ability to pay its debt and raising the danger of default.
The key contributors to the rating being lowered were the significant deterioration in the government’s financial status as well as its position in the external environment.
This is the worst of all government I have ever seen. The have successfully succeeded in build structure of debt the unborn child will still be servicing. This APC lead administration have destroy the financial structure of this country. When you don’t use the right technocrats for the job and focus on nepotism and sectionalism and tribalism these are the results.
The investigation for possible downgrading due to the possibility that the continued fiscal and external deterioration may accelerate, further undermining the government’s capacity to service debt and raising the likelihood that it will default on its obligations as a result.
The organization assigns a creditworthiness ranking to each borrower by utilizing a standardized rating scale. This scale calculates the predicted loss suffered by investors in the case of default and assigns ratings to various types of debt securities traded in the bond market.
The key reasons for the rating downgrade were the government’s serious fall in financial condition and its external posture.
the possibility that continued fiscal and external deterioration would increase, reducing the government’s ability to service debt and raising the risk of default.
The organization assigns a creditworthiness ranking to each borrower by utilizing a standardized rating scale. This scale calculates the predicted loss suffered by investors in the case of default and assigns ratings to various types of debt securities traded in the bond market.
The amount of money and capital that leaves Nigeria each year is greater than the country’s current account surplus.
The fact that sales result in no revenue is the key factor contributing to the country’s poor credit rating.
Higher oil prices would have been expected to have a positive impact on the government’s income and exports; however, the extension of the costly oil subsidies until 2022 has nearly completely nullified the positive effects of higher oil prices.
Unless the government makes a course correction, it will continue to expose the country’s economy to dangers that could have far-reaching and detrimental effects.