Economic Downturn Will Raise Nigeria’s Deficit, Says Moody’s

Moody’s Investors Service said Africa’s largest oil producer’s debt levels and deficits will rise quickly after being hit by the Covid-19 induced recession.

The US based credit rating firm said this on Monday in its 2020 annual report.

Moody’s said Nigeria’s B2 negative credit profile reflects the country’s increasing exposure to fiscal and external shocks.

The rating comes as Nigeria’s official debt profile surged to N31trn. Nigeria’s projected deficit in the 2021 budget is N5.2trn.

The rating firm blamed the development on Nigeria’s “very weak government finances,” which are constrained by an extremely low revenue base that hinders fiscal consolidation.

Aurelien Mali, Moody’s Vice President and the Report’s Co-Author said, “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.

“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.”

With the insurgency in the Northern region driven by the Boko Haram terrorist group, the firm said the development has added to Nigeria’s credit challenges.

But the firm believes that Nigeria’s hydrocarbon resources which have strong domestic demand in the medium-term could likely improve the country’s credit strengths.

Moody’s said, “Nigeria’s credit strengths include its large and diversified economy, supported by substantial hydrocarbon resources and strong domestic demand in the medium-term. In addition, domestic capital markets are increasingly deep and diversified.”

Moody’s noted that a rating downgrade would be likely as the Federal Government is unlikely to be able to cushion the damage to its revenue and its balance sheet.

The US firm said inability to tackle the challenge would lead to “rising liquidity and external risks to levels no longer compatible with a B2 rating.”