Nigeria’s Credit Rating downgraded by Moody, cutting economy into Junk While government bonds nosedived

Moody’s Investors Service  has downgraded Nigeria’s credit rating from B3 to the poor rating of Caa1, forecasting that the government’s fiscal and debt position are in peril without any feasible change in the nearest future.

Moody said, “The review for downgrade focused on Nigeria’s fiscal and external position and the capacity of the government to address the ongoing deterioration – other than by alleviating the burden of its debt through any form of default, including debt exchanges or buy-backs”.

This downgrading immediately triggered the government bonds to fall. “Longer-dated bonds were down the most, with the dollar-denominated 2051 Eurobond falling more than 2.8 cents in the dollar to 68.758 cents according to Tradeweb data . Only the Eurobond maturing this year fell less than 1 cent.”

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  “Nigeria’s sovereign-risk premium jumped the most in three months on Monday after Moody’s Investors Service downgraded the country deeper into junk. The extra yield investors demand to own the West African country’s dollar debt rather than Treasuries widened 49 basis points to 780, according to JPMorgan Chase & Co. data. The rate on the nation’s 2032 bonds jumped 56 basis points to 12%, also the most since October Forward contracts on the currency traded 28% weaker than the official rate on the one-year tenor.”

Reuters reported: “Nigeria’s state oil firm spent 4.39 trillion naira ($9.54 billion) on a petrol subsidy last year, which the government has blamed for the declining state of its public finances at the same time as oil production has been throttled by theft and pipeline vandalism.

Moody’s said it expects just the interest payments on Nigeria’s debt to take up about half of the government’s revenue in the medium term, up from 35% in 2022. It also sees the debt-to-GDP ratio rising to 45%, up from 34% last year and 19% in 2019.

The International Monetary Fund estimates the country spent 80% of revenues on servicing debt last year, a ratio that it reckons could rise to 100%.

Nigeria’s finance minister Zainab Ahmed said the country’s debt trajectory was sustainable in an interview with Bloomberg TV earlier in January and that the plan was to bring the debt service-to-revenue ratio down to 60% in 2023.”