Credit ratings agency, Moody’s Ratings has upgraded Nigeria’s long-term foreign currency and local currency issuer ratings to “B3” from “Caa1”, citing significant improvements in the country’s external and fiscal positions.
Also, the ratings agency in its latest publication revised the country’s outlook to “stable” from “positive”, as it expects recent progress on external and fiscal fronts to continue, though at a slower pace, if oil prices fall.
Explaining how it arrived at the “stable” outlook for Nigeria, Moody’s said,
“The stable outlook means we expect Nigeria’s recent progress on external and fiscal fronts to continue, though at a slower pace if oil prices fall.
“We assume current policies—like the flexible exchange rate—will stay in place, supported by a healthy balance of payments. Over the next few years, we expect debt to level off at 50 percent of GDP, with interest payments taking up about 35 percent of government revenue.”
Similarly, Moody’s upgraded Nigeria’s foreign currency senior unsecured debt ratings to B3.
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Rationalising its action, Moody’s stated, “The upgrade reflects significant improvements in Nigeria’s external and fiscal positions. A more flexible exchange rate has greatly bolstered external reserves. Concurrently, the removal of oil subsidies has alleviated budgetary spending pressures. Initially, these policy shifts posed inflationary risks, with, as a result, a potential for policy reversal.
“These risks have now diminished, with inflation and domestic borrowing costs showing nascent signs of easing, giving us confidence that the policy changes are becoming more entrenched. Moreover, tax reforms have started yielding results. Although vulnerabilities related to oil prices and the exchange rate remain, Nigeria’s more robust buffers support a B3 rating.”
Additionally, Moody’s delved into inflationary pressure in Nigeria, and said, “Nigeria’s high inflation reflects chronic macroeconomic imbalances and the side effects of the corrective policy measures taken over the last two years. Inflation has therefore been slow to temper, but signs of easing have now emerged.
“A significant update to the Consumer Price Index basket weights, the first since 2009, occurred at the end of 2024, bringing the inflation rate to 24.5% in January from 34.8 percent in December 2024, complicating long-term trend analysis. Nonetheless, a slight decline in inflation since January indicates underlying pressures are easing.
“Food price inflation, a major driver of overall inflation and social risks, shows a clearer downward trend, falling for three consecutive months from 26.1 percent in January to 21.3 percent in April.
“Social risks peaked in the summer of 2024 with widespread protests over living costs. While risks persist, especially if the naira depreciates further amid falling oil prices, the pass through to inflation has been reduced alongside the external rebalancing.”
Moody’s upgrade of Nigeria has reinforced earlier position taken by the World Bank where it said Nigeria’s economy achieved its fastest growth in about a decade in 2024, driven by a strong fourth quarter and an improved fiscal position.
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