Tinubu Readiness to Confront Policy Dilemma Credit Positive, Risky -Moody’s
President Tinubu’s ambition to address long-standing challenges such as the oil subsidy and distortionary forex regime is credit positive if the economic and social risks can be managed, Moody’s said in a rating action.
Earlier in the year, the rating agency downgraded the Government of Nigeria’s long-term foreign-currency and local-currency issuer ratings.
The country’s foreign currency senior unsecured debt ratings was downgraded to Caa1 from B3 and changed the outlook to stable. At the inaugural speech earlier this week, Tinubu announced a plan to remove subsidies on fuel and reform foreign exchange policy.
Moody’s has also said the country lacks the capacity to implement reforms. This time, the rating agency see the new president move as credit positive but risky.
Moody’s expectation that the government’s fiscal and debt position will continue to deteriorate is the main driver behind the rating downgrade.
The government faces wide-ranging fiscal pressure while the capacity to respond remains constrained by Nigeria’s long-standing institutional weaknesses and social challenges.
Ultimately, the risk that a negative feedback loop sets in over the next couple of years between higher government borrowing needs and rising interest rates has intensified, exacerbating the policy trade-off between servicing debt and financing other key spending items.
The 2023 budget plans for an even larger fiscal deficit than in 2022, while the government’s funding options remain narrow and reliant on central bank financing. #Tinubu Readiness to Confront Policy Dilemma Credit Positive, Risky -Moody’s