Moody’s projects Nigeria’s debt-to-GDP ratio to rise to 45%
Investors are currently dumping Nigerian bonds after rating agency; Moody’s downgraded the country on Friday to Caa1 from B3.
In long-term credit rating, any debt obligations rated Caa1 are generally judged to be of poor standing and are subject to very high credit risk.
Therefore, this rating means that Moody’s does not believe that Nigeria is capable of meeting its long-term debt obligations.
This rating is expected to have serious implications on Nigeria’s ability to raise external funding via long-term debt instruments such as Eurobonds.
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Reuters reports that Moody’s rating showed that the longer-dated bonds were down the most, with the dollar-denominated 2051 Eurobond falling more than 2.8 cents in the dollar to 68.758 cents, citing data from Tradeweb. Only the Eurobond maturing this year fell less than 1 cent.
As the bond prices tumbled, the premium or ‘spread’ investors demanded to hold Nigerian debt jumped 46 basis points to 777 basis points. Nigeria’s bonds had outperformed other African and emerging market issuers over the last six months, according to JPMorgan.
What Moody’s is saying
According to the rating agency, “The review for downgrade focused on Nigeria’s fiscal and external position and the capacity of the government to address the ongoing deterioration – other than by alleviating the burden of its debt through any form of default, including debt exchanges or buy-backs.”
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“Immediate default risk is low, assuming no sudden, unexpected events such as another shock or shift in policy direction,” Moody’s added.
The deteriorating state of Nigeria’s public finance accounted substantially for the downgrade as government revenue continue to dwindle while debt servicing continued to gulp more than 80% of revenue.
Moody’s said it also sees the debt-to-GDP ratio rising to 45%, up from 34% last year and 19% in 2019.