Moody’s, the renowned rating agency, has upgraded its outlook on Nigeria from stable to positive, indicating a potential reversal in the country’s fiscal and external positions due to robust reform initiatives undertaken by the government.
While affirming its “Caa1” long-term foreign currency and local currency issuer ratings, Moody’s acknowledged the possibility of a turnaround in Nigeria’s economic standing, a stark shift from its previous downgrade of the nation’s sovereign rating to deeper junk territory in February.
At that time, Moody’s had expressed concerns about Nigeria’s ability to withstand challenges, citing institutional vulnerabilities and social issues that had eroded the country’s capacity to weather economic storms. The downgrade to Caa1 from the prior rating of B3 highlighted Nigeria’s descent into non-investment grade territory.
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However, the emergence of Bola Tinubu as the President of Nigeria has signaled a wave of economic reforms, offering hope for a brighter economic outlook. President Tinubu’s administration has swiftly introduced bold measures aimed at stimulating growth and attracting substantial new investments into Africa’s largest economy.
Among the notable reforms, Tinubu’s government eliminated a costly fuel subsidy in May, lifted exchange controls, and eased restrictions on certain imports. These reforms, though welcomed by investors, have faced criticism from unions due to resulting cost increases, exacerbating Nigeria’s persistently high inflation levels, which have remained in double digits since 2016, further straining savings and incomes.
Moody’s, in a statement, said “These policy changes, and those potentially to come, have raised the prospects of a fiscal and external improvement in the country’s credit profile.”
President Tinubu is pushing to curtail the persistent poor performance of the naira in the forex market, which has sustained Nigeria’s double-digit inflation currently standing at 27…%. The naira traded on Saturday at an all-time low of N1,099.05/$1 at the official market and around N1200/$1 at the parallel market.
To actualize this push, the Central Bank of Nigeria commenced the clearance of $7 billion outstanding foreign currency forwards in November, aiming to attract fresh dollar inflows and stabilize the depreciating naira.
Moody’s positive outlook follows S&P Global Ratings’ August decision to revise Nigeria’s outlook to stable from negative, affirming its rating at ‘B-/B.’ These shifts in rating agencies’ perspectives reflect a growing sentiment of cautious optimism surrounding Nigeria’s economic trajectory, underpinned by ongoing reforms and strategic fiscal measures.
Sustaining the gain
While sound economic policies are required to move Nigeria’s economy to its pre-2015 status, the sustainability of the gain that prompted the recent Moody’s rating is highly tied to activities in the oil sector.
The crisis in the oil sector, which includes oil theft and pipeline vandalism, has resulted in low oil output – significantly depleting Nigeria’s revenue generation. Although production has improved recently to about 1.5 million barrels per day (mbpd), the challenges persist.
On Friday, the Group Chief Executive Officer of NNPCL, Mele Kyari, revealed during a presentation before the Senate Committee on Appropriations, that the Nigerian National Petroleum Company Ltd. (NNPCL) has identified 4,800 illegal connections on 5,000 kilometers of oil pipelines nationwide.
In his presentation to the committee, the NNPCL boss stated that the oil-related projections in the budget are both practical and achievable, despite the current daily oil production averaging 1.5 million barrels in the country.
He explained that “the illegal connections on oil pipelines in the Niger Delta are so rampant that within 100 kilometers of the affected pipelines, 300 insertions are made on them, which eventually made the pipe to be weak to the point of not being able to hold the pressure of oil pumped, let alone delivering it to the targeted destination.”
Grappling with this crisis, the government has sought the help of non-state actors to protect oil installations – a situation experts have criticized, saying it’s a sign of helplessness. Against this backdrop, analysts believe that a negative shadow still covers Nigeria’s economic outlook despite reforms.