Moody’s has downgraded Nigeria’s long-term foreign currency, local-currency issuer ratings, and foreign currency senior unsecured debt ratings to Caa1 from B3 and changed the outlook to stable. The new rating concludes the review for the downgrade initiated on 21 October 2022.
The fiscal and debt position of the country triggered the downgrade; the country’s debt rose to N44.06trn as of September 2022 and is expected to rise to N77trn after the securitization of the CBN’s ways and means.
The rating agency expects the debt position to further deteriorate with the large 2023 budget deficit and lack of access to external funding sources apart from depressed oil production and capital outflows. Currently, the default risk is low with the assumption there will be no sudden/ unexpected event such as a shift in policy direction that would raise the default risk.
Analysts believe this makes the country unable to borrow in the international market as foreign investors will prefer to stay away or demand extremely high yields to mitigate risk. This suggests Nigeria can only raise funds through domestic borrowing, suggesting huge bond issuance in 2023.
Regulators’ Actions and Inactions are Stoking Regulatory Uncertainty
In a circular released on Friday, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) assured Nigerians that there is PMS (Petrol) sufficiency of over 1.6bn litres as of January 26, 2023, on the country’s land and marine. Analysts say the model of reporting available stock of petrol has not worked and would not work to easy scarcity as long as differential pricing persists and marketers lack access to fuel directly from the NNPC Ltd depots. The Authority attributed the current hitch to increased activities of cross-border smugglers and noted that ongoing rehabilitation of strategic roads ahead of the rainy season has necessitated the rerouting of trucks conveying petroleum products, thus increasing transit time and associated costs. Although the regulator said it has reinforced its monitoring team and put other measures in place, there is clear disorientation in pricing and operation of the industry. Analysts believe the regulator is neither active nor passive in resolving the current challenges and this is promoting regulatory uncertainties in the downstream oil industry.
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