Nigeria susceptible to external shock – Moody’s

Global rating agency, Moody’s, in its latest compilation, has changed Nigeria’s outlook to ‘Negative’. The agency said the change is due to the nation’s fragile financing structure which presently relies on Central Bank intervention and external investment. The latest stance will serve notice to investors and place internal businesses on alert going into 2020.

Moody’s is part of an American holding company that rates companies or countries’ capacity to pay back debt. The firm provides informed rating and financial analysis that help investors make decision about buying securities or bonds.

Precisely, the rating agency noted that the Federal Government has largely relied on the Central Bank of Nigeria and foreign investors to balance up its fiscal deficit and foreign reserve respectively. The cost of servicing external debt certificate is also piling, which ultimately will act as drag on the economy if changes are not ringed somewhere.

Meanwhile, despite measures put in place by the government, in form of increased VAT, and stimulant policies to drive internal consumption of certain produce, the agency does not see economic growth rising beyond 2% within the next couple of years.

According to the statement issued by Moody’s, “Already weak government finances will likely weaken further given an extremely narrow revenue base and persistently sluggish growth that hinders fiscal consolidation.”

It went further to state that the cost of attracting external investment by paying higher interest rates is unsustainable and leaves the country at the whim of external sentiment:

“this policy is very costly, and with consequent impact on the yields of other government financing instruments. Importantly, the large holdings of foreign investors make Nigeria’s external position vulnerable to an adverse change in investor sentiment that could quickly materialize given the short-term nature of the instruments.”

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