CEM REPORT, ECONOMY | In a positive development for Nigeria’s economy, Moody’s Investors Service has revised the nation’s credit outlook to “positive” from “stable.” This upgrade comes in recognition of the government’s recent efforts to improve its fiscal position and shore up foreign reserves.
Several key actions implemented by the government contributed to this positive outlook. The devaluation of the naira and the removal of a significant portion of the oil subsidy are two of the most notable reforms. These measures, according to Moody’s analysts Lucie Villa and Matt Robinson, “reflect the possible reversal of the deterioration in Nigeria’s fiscal and external position.”
While Moody’s affirmed Nigeria’s credit rating at Caa1 (seven levels into “junk” territory), they acknowledged that the implemented reforms might not be sufficient to improve the credit profile significantly. Despite the positive outlook, Nigeria’s fiscal and external positions remain weak.
Rationale for Moody’s Change of Outlook
Central Bank Governor Olayemi Cardoso recently pledged to address the nation’s economic woes, including curbing inflation and stabilizing the battered naira. He announced that policymakers will clear forward foreign-exchange contracts that have weighed heavily on the currency.
Since President Bola Tinubu took office in May 2023, he has implemented several reforms, including scrapping the costly fuel subsidy. This decision aims to transform the ailing economy, attract investment, and achieve sustained growth above 6 per cent. However, these reforms have come at a cost, with inflation reaching an 18-year high in October.
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While the reforms have not yet significantly impacted economic growth, Nigeria’s GDP did expand by 2.54 per cent in the third quarter of 2023 compared to the previous year. Despite this positive growth, the nation faces a significant challenge in managing its debt burden. Nigeria is projected to spend six times more on debt servicing in 2024 than on essential infrastructure projects like schools and hospitals.
While the revised credit outlook is a positive development, Nigeria’s path towards economic stability remains challenging. The success of the implemented reforms will be crucial in determining the nation’s future economic prosperity and addressing issues like extreme poverty, which affects over 40 per cent of the population.
