Nigeria, Africa’s largest economy, has received a positive outlook from Moody’s Investors Service, a global credit rating agency, following its recent reforms to improve its fiscal position and shore up foreign reserves.
Moody’s announced on Friday that it had changed Nigeria’s outlook from stable to positive while affirming its Caa1 rating, which is seven levels below investment grade. The agency cited the actions taken by the government, including the devaluation of the naira and the removal of the largest part of the oil subsidy, as reasons for the upgrade.
The positive outlook reflects Moody’s view that Nigeria’s credit profile is on an improving trend, supported by a gradual recovery in oil prices, increased oil production, and a more flexible exchange rate regime. The agency also noted that Nigeria’s debt burden remains moderate, despite the impact of the coronavirus pandemic and the recession in 2020.
Nigeria’s economy contracted by 1.8% in 2020, according to the National Bureau of Statistics, but is expected to grow by 3.3% in 2021, according to the International Monetary Fund. The country’s foreign reserves have increased by 10% since January, reaching $42.5 billion as of December 7, according to the Central Bank of Nigeria.
The positive outlook from Moody’s comes as Nigeria is implementing a series of reforms to boost its revenue, reduce its dependence on oil, and attract more foreign investment. The government has adopted a medium-term revenue strategy, which aims to increase the tax-to-GDP ratio from 6% to 15% by 2025. The government has also removed most of the fuel subsidy, which cost about 1.2% of GDP in 2019, and introduced a service-based electricity tariff, which is expected to improve the efficiency and sustainability of the power sector.
Nigeria is also seeking to improve its business environment and governance, as well as diversify its economy. The government has launched the Economic Recovery and Growth Plan, which focuses on key sectors such as agriculture, manufacturing, and digital services. The government has also ratified the African Continental Free Trade Area agreement, which will create a single market of 1.3 billion people across 54 countries.
However, Nigeria still faces significant challenges, such as low per capita income, high poverty and unemployment rates, weak institutions, and security risks. Moody’s warned that Nigeria’s rating could be downgraded if the government fails to sustain its reform momentum, or if there is a deterioration in the political or security situation.
Nigeria’s positive outlook from Moody’s is a welcome sign of confidence in the country’s economic prospects, as it seeks to recover from the pandemic and the recession. The outlook also provides an opportunity for Nigeria to access cheaper and longer-term financing from international markets, which could help to boost its infrastructure and human capital development. Nigeria’s economy is on the rise, and with continued reforms and resilience, it could achieve its full potential.
Source: Bloomberg
