Moody’s finally downgrades Nigeria

Moody’s Investors Service, better known as Moody’s, has finally downgraded Nigeria’s long-term issuer ratings from Ba3 to B1.

B1, B2 and B3 are judged to “have speculative elements and a significant credit risk”, while Ba1, Ba2 and Ba3 are seen as “speculative and a high credit risk”.

Moody’s has also assigned a stable outlook after concluding the review for downgrade initiated in March 2016.

Announcing this on Friday, the company, which ranks the creditworthiness of borrowers, said the downgrade is based on Nigeria’s increased external vulnerability “brought about by the prospect of lower-for-longer oil prices”.

The rating was also affected by the “execution risk” in the transition to a less oil-dependent federal budget, and the implications for the government’s balance sheet should it not achieve its aims

Moody’s further said “an elevated interest burden over the next two years while the government grows its non-oil tax receipts” was the third factor in the downgrade.

Angola was also downgraded from Ba3 to B1, Democratic Republic of the Congo from B1 to B2 and Gabon from Ba3 to B1.

On a positive note, Nigeria was given a “stable outlook” — unlike the three others that were also downgraded.

“The stable outlook reflects the fact that Nigeria’s credit fundamentals will continue to compare favorably with peers at the B1 level, despite the likely further deterioration in the country’s credit metrics due to the oil price shock,” it said.

Moody’s ratings provide investors with “a simple system of gradation” by which future relative creditworthiness of securities may be gauged.

Standard & Poor’s, Moody’s and Fitch are considered one of the global Big Three credit rating agencies.