Emmanuel OchayiMoody’s Investors Service, a globally recognized rating agency, shifted Nigeria’s credit outlook from stable to positive, marking a potential turning point in the nation’s fiscal and external trajectory due to robust governmental reforms.
According to Prime Business Africa, this shift, announced on December 8, 2023, signals a recognition of the transformative impact of the administration’s rigorous measures on the economy.
In a statement, Moody credited this optimistic adjustment to governmental initiatives such as the devaluation of the naira and the removal of oil subsidies. These measures, though initially causing inflationary pressures and social challenges, are viewed as vital steps toward bolstering fiscal flexibility and laying the groundwork for long-term economic stability.
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Rasaq Abiola, an Economist, lauded Moody’s proactive stance, emphasizing that this rating adjustment reflects the agency’s acknowledgment of the near-to-medium-term effects of the administration’s arduous reforms. “The rating upgrade by Moody’s is a proactive step that signals the rating agency’s recognition of the impact of tough reforms being taken by the current administration,” Abiola noted in his analysis.
Abiola further elaborated on the implications of the FX market liberalization and fuel subsidy removal, noting their immediate impact on inflation and societal conditions.
However, he stressed that these measures, if coupled with appropriate fiscal strategies, could fortify Nigeria’s economic fundamentals and empower fiscal and monetary authorities to pursue sustainable growth-oriented reforms.
“Notably, the liberalization of the FX market and removal of opaque fuel subsidy have been hard knocks on inflation and social environment, albeit these measures can help improve fiscal flexibility. More importantly, if complemented with requisite fiscal measures, they should improve the fundamentals of the economy and enhance the capacity of the monetary and fiscal authorities to pursue reforms relevant to sustainable growth,” he said
The timing of this rating upgrade coincides with the government’s efforts to attract investments across various sectors, aiming to invigorate foreign direct investment and portfolio flows into the country. Abiola emphasized the importance of this positive rating announcement from Moody’s, highlighting its potential to synergize with the government’s ongoing initiatives to draw foreign capital.
Moreover, Abiola noted positive signs in the 2024 appropriation bill, showcasing improved metrics with higher revenue and a reduced deficit compared to the previous year. Although the deficit remains above the fiscal responsibility threshold, it demonstrates the government’s commitment to steadily enhance its fiscal position while addressing critical infrastructure gaps.
“Interestingly, the 2024 appropriation bill suggests improved metrics, including higher revenue and lower deficit. Whilst the deficit financing of 3.88% of GDP is still above the fiscal responsibility threshold, it’s an improvement over the 2023 budget and suggests appetite of the government to steadily improve fiscal position, even as it remains enthusiastic about financing infrastructure gaps.”
Moody’s upward shift in Nigeria’s credit outlook, while acknowledging the impactful reforms, also serves as a reminder of existing challenges. Nigeria grapples with persistent inflation rates and substantial debt servicing requirements, underscoring the imperative need for sustained and comprehensive reforms to fortify its fiscal and external standings on the global stage.
The future of Nigeria’s economic resurgence hinges upon the resolute execution of reforms, reinforcing fiscal positions, and attracting sustainable investments. The recent rating upgrade by Moody’s stands as a testament to the potential transformation these efforts could bring and the pivotal role they play in Nigeria’s economic recovery.
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