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Nigeria’s government bonds fell heavily on Monday after ratings agency Moody’s downgraded the West African oil producer late on Friday to Caa1 from B3, warning the government’s fiscal and debt position was expected to keep deteriorating.
Longer-dated maturities were down the most, with the dollar-denominated 2051 Eurobond falling more than 2.6 cents in the dollar to 68.892 cents according to Tradeweb data .
“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.
Nigeria’s state oil firm spent 4.39 trillion naira ($9.54 billion) on a petrol subsidy last year, which the government has blamed for the declining state of its public finances at the same time as oil production has been throttled by theft and pipeline vandalism.
Moody’s said it expects just the interest payments on Nigeria’s debt to take up about half of the government’s revenue in the medium term, up from 35% in 2022. It also sees the debt-to-GDP ratio rising to 45%, up from 34% last year and 19% in 2019.
The International Monetary Fund estimates the country spent 80% of revenues on servicing debt last year, a ratio that it said could rise to 100%.
“Immediate default risk is low, assuming no sudden, unexpected events such as another shock or shift in policy direction,” Moody’s said.
Nigeria’s finance minister Zainab Ahmed said the country’s debt trajectory was sustainable in an interview with Bloomberg TV earlier in January and that the plan was to bring the debt-to-GDP ratio down to 60% in 2023.
