Analysts say Moody’s Negative Outlook Reflects Weak Macroeconomic Fundamentals|

Afrinvest, a leading independent investment banking firm, said that Moody’s, an international rating agency, negative outlook reflects the nation’s current realities. The firm however said that fiscal ratio could worsen in 2019.

Nigeria recently suffered an outlook downgrade from stable to negative by Moody.

In its analysts note, the firm noted that an increasing fragility in public finances and sluggish growth prospects, which pose great risks to government’s fiscal strength and external position, were the main concerns.

However, the rating agency affirmed the B2 long-term local and foreign currency issuer ratings, the B2 foreign currency senior unsecured ratings, and the (P) B2 foreign currency senior unsecured MTN programme rating.

Analysts reckoned that this is the second change made since November 2017, when Moody’s downgraded Nigeria’s sovereign issuer rating to B2 from B1, but maintained a stable outlook.

“This change in outlook is unsurprising although worrisome and clearly reflects the prolonged weak macroeconomic fundamentals, continuous decline in the trade surplus to ₦242.8 billion as reflected in second quarter of 2019 trade report”, Afrinvest stated.

These also include downtrend in capital importation to $5.4 billion in the third quarter of 2019 and the moderation in external reserves to $39.7 billion.

External reserves dropped down by 12.0% since first half of 2019, and has declined 8% year to date amid elevated global risks which Nigeria faces.

“We note that the decline in external reserves mirrors an increasingly weak external position despite easy global monetary conditions which should support foreign capital inflows into emerging markets.

“However, we do not expect any sudden turnaround in the near term given that major downside risks, including capital flow reversals, weak current account balance and the possible impact of the $9.6 billion case involving the FGN and P&ID Limited, still abound”, Afrinvest remark.

Afrinvest stated that on the fiscal side, the FG’s debt profile is still growing amid weak revenues with the total public debt as at first half of 2019 rising 5.4% to ₦25.7 trillion.

This is equivalent of $83.9 billion from ₦24.4 trillion or $79.4 billion as at 2018 due to increased FGN borrowings at 6.2% to ₦20.4 trillion.

While debt service cost moderated by 8.0% year on year to ₦1 trillion following the FG’s strategy to tweak the debt mix by increasing the share of foreign debt to 40.0%, debt sustainability remains a concern.

Afrinvest said debt service-to-revenue as at first half of 2019 is elevated at 48.3% and 43.8% of actual revenue collected and budgeted debt service respectively, it suspects these ratios could worsen by 2019.

Analysts stated that as the FG plans a return to the Eurobond market to partly finance the 2020 budget deficit of ₦2.4 trillion, the outlook downgrade may trigger weaker investor’s appetite for the Nigerian Eurobond market.

Afrinvest said this could dampen foreign capital inflows especially foreign direct investment (FDI) inflows which have significantly remained low at $1.9 billion relative to peers; Egypt which has $6.8 billion, South Africa $5.3 billion and Ghana $3 billion.

According to United Nations Conference on Trade and Regulation (UNCTAD) total $45.9 billion FDI inflows into Africa as at 2018.

VIAMichael Oluwafemi
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