FG disagree with Moody’s on Nigeria rate downgrading


THE Federal Government has objected the latest Moody’s downgrade of Nigeria from a B1 stable to B2, saying it does not reflect the positive trends in the economy at the market.
“Since Nigeria was last rated by Moody’s (as B1 stable) in December 2016, it has successfully emerged from a protracted recession and recorded improvements across a broad range of indices,” a joint statement by the Ministry of Finance, Central Bank of Nigeria (CBN) and Debt Management Office (DMO), read on Wednesday.
Government said the Nigerian economy had witnessed a growth of 0.55 per cent in Q2 of 2017, as well as returning business confidence as evidenced by a PMI index of 55 per cent.
Other indicators the government argued include a stable foreign exchange window for importers and exporters, with improving liquidity and convergence of the parallel and official rates.
“Significantly improved foreign exchange reserves, now totalling $34 billion, increased oil production, combined with stable and now improving oil prices. It also listed as part of the economy’s recent gains.
“A slowly improving revenue profile, with non-oil revenue (principally taxes) up 10 per cent, month-on-month improvements in inflation levels since January 2017, with inflation continuing to trend downwards.
Strong year-on-year improvement on the World Bank Ease of Doing Business Rankings from 169th to 145th place, a 24 place move in one year,” and “in 2016, the highest capital expenditure deployment since 2013, making investments in critical infrastructure to support further growth.”
The government further observed that the Moody’s rationale for the latest rating is the need for Nigeria to improve non-oil revenue aggressively, which it says “is absolutely and directly aligned to its priorities.”
“This is critical to our economic development and is the basis for the establishment of a stable and inclusive economy, which can withstand global shocks and has the resources to increase investments in our infrastructure.
“We have put in place a number of measures to improve our collection and FIRS (Federal Inland Revenue Service) has made good progress in increasing revenues, particularly when considering that the economy is still recovering from the oil price shock. Examples include the introduction of a tax amnesty (the ongoing Voluntary Assets and Income Declaration Scheme (VAIDS)), which is showing positive results and plugging leakages and deployment of technology driven revenue management strategies.
“Our revenue initiatives are changing the mix of revenue sources available to government from the traditional oil or debt to a combination of oil, debt and domestic revenue. For example, the 2018 budget includes N710 billion proceeds from the restructuring of the government’s equity in the JV oil assets. The reform is aimed at increasing private sector equity participation to improve efficiencies in the sector and also provides revenue to the government which will be deployed solely and exclusively for creating new assets in Nigeria.
Meanwhile, Nigeria’s bonds were flat on Wednesday, shrugging off a downgrade by Moody’s, since investors had already factored in issues that triggered the rating change and were buying debt at a discount to book profits, traders said.
Ratings agency, Moody’s, cut Nigeria’s long-term foreign-currency bond to B1 from Ba3 and kept its outlook stable, saying government’s efforts to broaden non-oil revenue had been unsuccessful. The local-currency rating was unchanged at Ba1.
Domestic bonds traded unchanged after some foreign investors booked profits before the rating decision. Yield on the benchmark 20-year bond rose 10 basis points to 15.03 per cent, traders said.
On the eurobond market, yields on Nigeria’s $500 million of bonds due 2018 rose to 3.60 per cent on Wednesday from 3.08 per cent. Yield on its latest $1.5 billion issue due 2032 climbed to 6.80 per cent from 6.7 per cent.