Moody’s upgrades Nigeria’s credit outlook to positive, maintains rating at Caa1

American-based credit rating agency, Moody’s Investors Service (Moody’s), has moved Nigeria’s credit outlook from stable to positive.  

This is according to a statement by the credit rating firm on Friday, December 8, 2023.   

The uptrend moves from stable to positive indicates, according to the statement, the possible reversal of the deterioration in Nigeria’s fiscal and external position as a result of the authorities’ reform effort. 

Moody’s pointed out government steps, such as devaluing the naira and removing a substantial part of the oil subsidy as key indicators for the upgrade from stable to positive.  

• “The positive outlook reflects the possible reversal of the deterioration in Nigeria’s fiscal and external position as a result of the authorities’ reform efforts,” wrote analysts Lucie Villa and Matt Robinson.

Reforms not sufficient to improve credit profile

Meanwhile, the international firm maintains the country’s long-term issuer ratings at Caa1, noting that the structural reforms are undercut by still “weak fiscal and external positions.”.  

It is important to note that the Central Bank of Nigeria (CBN) is still grappling with a heavy backlog obligation which is one of the key reasons the naira continues a downward trend against the dollar since President Bola Tinubu eased the nation’s control of the foreign exchange market.  

Meanwhile, CBN governor, Yemi Cardoso, in his first outing as the head of that institution, pledged last month to address forward foreign-exchange contracts that have been impacting the performance of the naira. 

Ratings Rationale

The review for the upgrade in credit outlook primarily emphasized a reversal in the economic projection of the country. It also indicated that President Tinubu’s reforms may have begun to have a positive impact on the economy.  

Nevertheless, Moody’s maintaining the country’s rating at Caa1 shows that the nation’s credit profile is still weak.

Nigeria’s fiscal and external standings, along with the government’s ability to counter the ongoing deterioration in the foreign exchange market add to the profiling.  

Nigeria still grapples with an almost two-decade inflation rate standing at 27.33%. Food inflation, on the other hand, is at an alarming 31.52%.  

Nigeria is expected to spend at least six times more on servicing its debt next year than on building new schools or hospitals in the country.  

President Tinubu, in presenting the 2024 budget earlier this month, stated that he projects an impressive 3.76% in the 2024 fiscal year. 

Also, the President forecasts that inflation will settle at 21.4% at 21.4%, a 5.93%-point decline from its current 27.33% rate. 

Meanwhile, in August, S&P Global Ratings revised its outlook on Nigeria to stable from negative and affirmed its rating at ‘B-/B’.