The oil rich Nigeria is going in the South African way earning wrath of the rating agencies. Moody’s Investors Service, has downgraded Nigeria’s credit ratings making it difficult for the investment hungry country to attract more foreign direct investments. The negative outlook is indicative of increasing risks to the government’s fiscal parameters and its external debt, rendered by the extremely narrow revenue base. The Nigerian government, with the downgrading, will have to resort to costly options to service its rising debt burden.
An important reason for the downgrade is the mounting non-performing assets with the banking system. Moody’s said that if the exposure of non-performing assets (NPL) is reduced through proper recovery of loans and appropriate capital infusion, fiscal stability can be achieved. The rating agency also has maintained that external debt for Nigeria is moderate. Significantly, Nigerian banks’ NPL was reduced from 14.1% in 2018 to 6.6% at the end of October this year. Financial experts hail this as a positive development since it is for the first time the NPL has dropped to a single digit in the last few years.
Moody’s also estimated that the economic growth of Nigeria measured in terms of gross domestic product would be modest since it would expand from an estimated 2.3% in 2019 to 2.8% in 2020. The possibility of the economy caught up in oil price fluctuations is also not been ruled out.
