Nigeria’s Bonds Witness Sharp Decline After Reduction In Moody’s Rating

Nigeria's government bonds experienced a significant decline Monday after Moody's downgraded the country from B3 to Caa1. The agency noted the government's fiscal and debt conditions will continue to worsen.

Investors will require an extra yield of 780 basis points to acquire Nigeria's dollar debt instead of Treasury securities, according to the data by JPMorgan Chase & Co. The 2032 bond rate for the country jumped by 56 basis points to 12%, the highest since October, Bloomberg Reported.

"The review for downgrade focused on Nigeria's fiscal and external position and the capacity of the government to address the ongoing deterioration – other than by alleviating the burden of its debt through any form of default, including debt exchanges or buy-backs," Moody's said, according to This Day Live.

Moody's noted Nigeria's fiscal situation would remain under pressure for the foreseeable future due to declining oil production, increasing cost of oil subsidy, and rising interest rates. Also, policy changes following the election will likely take some time to put Nigeria's fiscal situation on a more sustainable course.

The rating agency said Nigeria's "outlook is stable." Despite the fact that a new administration may rekindle the reform movement to support budgetary consolidation in Nigeria following the upcoming general elections on Feb. 25, it was noted that implementation would likely remain lengthy due to obvious societal and institutional obstacles.

Moody's further asserted the decision to downgrade Nigeria's senior unsecured MTN program's rating from (P)B3 to (P)Caa1 concludes the review that began on Oct. 21, 2022. It cited the deteriorating budgetary and debt situation of the government as the primary reason for the downgrading rating.

"The government faces wide-ranging fiscal pressure while the capacity to respond remains constrained by Nigeria's long-standing institutional weaknesses and social challenges," Moody's said, as per Business Day.

Meanwhile, the government of Nigeria has attributed the deteriorating status of its public finances, which have been stifled by theft and pipeline vandalism, to the national oil company's 4.39 trillion nairas ($9.54 billion) expenditure on a fuel subsidy last year.

The interest payments on Nigeria's debt are expected to consume roughly half of the government's revenue in the medium term, up from 35% in 2022, according to Moody's. Furthermore, it predicts that the debt-to-GDP ratio will increase to 45% from 19% in 2019 and 34% last year.