Moody’s affirms Nigeria’s Ba3 rating with stable outlook

15 December 2015, Abuja – One of the big three global credit rating agencies, Moody’s Investors Service, has affirmed Nigeria’s Ba3 issuer rating with a stable outlook.

Godwin Emefieli, CBN Governor.

Mr Godwin Emefieli, CBN Governor.

The affirmation of the Nigeria’s rating, according to the global credit rating agency, was based on the strength of the federal government’s balance sheet, despite budgetary pressures stemming from the current low oil price environment; the country’s robust medium-term real Gross Domestic Product (GDP) growth prospects, despite the current economic slowdown; and the successful presidential election that has provided an opportunity for the country to improve institutional strength and governance.

Commenting on Moody’s rating, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, said it was an “attestation that Nigeria is dealing with the challenges posed by the global drop in commodity reasonably well”.

Speaking to THISDAY on the phone, he added that both Nigeria’s fiscal and monetary authorities would continue to work together in a collaborative manner to grow the Nigerian economy.

“The slight improvement in the GDP growth in the third quarter of this year and the moderation we witnessed in inflation for the month of October were positive signals for the economy and expect that these and other major indicators will continue to improve in the months ahead,” he said.

Emefiele’s response to Moody’s credit rating came as THISDAY findings at the weekend showed that the widening gap between the official and parallel market exchange rates of the naira was spurring round tripping of the United States dollar.

And as part of its efforts to reduce the pressure on the naira, the apex bank has issued new guidelines to Bureau de Change (BDC) operators, restricting them to one branch operations.

Moody’s in its latest rating on Nigeria signed by its Senior Vice-President, Sovereign Risk Group, Kristin Lindow, and released at the weekend, however, lowered the country’s foreign currency ceiling for bonds to Ba2 from Ba1. This, it stated, reflected a somewhat higher risk that the government would impose a moratorium on other external borrowers in the event of its own severe financial distress.

The credit rating agency said while overall, Nigeria’s external vulnerability remained relatively low, it explained that the lowering of the foreign currency bond ceiling took into account the recent restrictions imposed by the CBN to conserve the country’s foreign exchange reserves.

Moody’s retained Nigeria’s local currency bond and bank deposit ceilings as well as the foreign-currency ceiling for bank deposits Baa3 and B1 respectively.

Explaining the rationale for its rating, the New York-based agency said Nigeria got its Ba3 issuer rating affirmation because of the strength of the federal government’s balance sheet, both on a standalone basis and relative to peers.

“General government debt is very low, estimated at 14 per cent of GDP in 2015 against a Ba-rated median of 45 per cent of GDP, and with an external debt component that is only 2.2 per cent of GDP, mostly on concessional terms,” it said, adding: “Although interest payments have increased to 17.9% of revenues, owing in part to the drop in revenue, government liquidity is ensured by a strong domestic capital market that could absorb even larger deficits.”

Moody’s stated further: “With the steep drop in oil prices over the past year, the 2015 general government deficit has deteriorated more than budgeted for. Moody’s estimates that the general government deficit will come in at 4.2 per cent of GDP, of which 2.2 per cent is the FGN’s deficit following the approval of the supplementary budget law, with the rest stemming from the accumulation of arrears at the level of the states and municipalities.”

It, however, noted that the federal government might also use its newly consolidated Treasury Single Account (TSA), which holds in excess of N 1.6 trillion ($8 billion), to finance part of its deficits.

In spite of lower budgeted oil price of $38/barrel proposed for 2016, the federal government plans to undertake revenue enhancement and expenditure cuttin

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