First-time public rating assignment
London, 07 November 2012 -- Moody's Investors Service has today assigned local- and foreign-currency
issuer ratings of Ba3 to the government of Nigeria. The outlook
on these ratings is stable.
The Ba3 ratings reflect the following key factors:
1) Nigeria's strong economic resilience and strength, which
are underpinned by its vast hydrocarbon wealth, its relatively large
size and developed non-energy sector, but offset by significant
infrastructure needs.
2) Still evolving governance structures which form a key challenge for
Nigeria's institutional strength.
3) The establishment of a sovereign wealth fund, which should support
the country's financial strength.
4) The country's moderate event risk due to the heightened security
conditions in the north of the country.
At the same time, Moody's has assigned Nigeria a Baa3 local-currency
country risk ceiling, which is the maximum credit rating achievable
in local currency for a debt issuer domiciled in that country.
Moody's has also assigned Nigeria a Ba1 foreign-currency
bond country ceiling and a B1 country ceiling for foreign-currency
bank deposits. These ceilings are lower than the local-currency
ceiling as they also capture foreign-currency transfer and convertibility
risks.
RATINGS RATIONALE
The first key factor underlying Moody's assignment of a Ba3 rating
to Nigeria is our expectation of continued strong economic growth given
the country's proven resilience to economic shocks, as demonstrated
during the global economic crisis and the country's domestic banking
crisis in 2008-09. Moody's expects the economy to
expand by 7.1% this year, down slightly from 7.4%
in 2011, as a result of the recent higher interest rate environment.
Overall, Nigeria's economic strength will continue to be underpinned
by the country's vast hydrocarbon wealth, its relatively large
size with a nominal GDP of $245 billion in 2011, and a diversified
non-energy private sector. The non-energy sector
has driven economic growth in the country in the past decade with an average
annual expansion rate of 8.1% during 2002-11.
Nevertheless, Moody's notes that Nigeria's economic
strength is constrained by a considerable deficit in its infrastructure,
requiring therefore significant investments.
The second key factor reflected in Nigeria's ratings is the country's
weak institutional strength, even relative to its Ba3-rated
peers. Nigeria's very low World Bank governance scores place the
country in the bottom quintile of Moody's-rated countries
in terms of governance. Moody's recognises however improvements
on key governance factors such as voice and accountability and political
legitimacy. The success of the government's amnesty programme
in the oil-producing Niger Delta region in 2009, which in
turn helped increase the country's oil production, and the
strengthening of democratic processes during the 2011 elections,
reflect improvements in these areas. Moody's also believes
that greater political legitimacy has helped the government implement
difficult reforms such as the partial removal of fuel subsidies in January
this year. Nevertheless, Nigeria's still evolving institutional
strength will remain a key constraint on its sovereign ratings in the
coming years.
The third driver of Nigeria's Ba3 ratings is the establishment of
a sovereign wealth fund -- the Nigerian Sovereign Investment Authority
(NSIA) -- to save and invest the country's future oil windfall,
a positive for Nigeria's financial strength. The creation
of the NSIA was driven by the government's commitment to address
the spending pressures and governance issues that led to the near-depletion
of its fiscal stabilisation fund, called the excess crude account
(ECA) in 2010. The substantial fiscal savings that were accumulated
in the ECA during 2004-08 were later partly deployed to pay down
some of the country's sovereign debt and mitigate the adverse effects
of the global economic recession on the domestic economy. However,
the ECA was also exposed to a variety of discretionary withdrawals,
and held just $2.7 billion by the end of 2010 from a peak
of around $20 billion in 2008. The NSIA has been structured
to prevent the governance issues experienced by the ECA and should help
the country re-build its financial buffers against weaker oil prices
in the future.
The fourth factor informing Nigeria's Ba3 ratings is the country's
moderate event risk, which is driven by the heightened security
conditions in the north of the country due to an escalation in militant
activity in recent years. Moreover, Moody's believes
that the challenging socio-economic conditions in this part of
the country will complicate the government's efforts to find a lasting
solution to the security question. The government now allocates
around 20% of its expenditure on security and defense, up
from around 9% in 2011. We expect spending on security to
remain elevated in the coming years.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on Nigeria's Ba3 ratings reflects Moody's
expectations of continued rapid economic growth and strengthened fiscal
management, balanced against moderate concerns over security risks
that could negatively impact economic activity and investment.
WHAT COULD MOVE THE RATINGS UP/DOWN
Moody's would upgrade Nigeria's ratings in the event of a
significant improvement in the country's institutional strength.
The country's ratings could also be positively impacted if the NSIA
were to accumulate significant savings to help protect the economy from
internal or external shocks. Finally, tangible improvements
in Nigeria's infrastructure, which would result in more rapid
growth, would be credit-positive.
Conversely, Moody's would downgrade Nigeria's ratings
in the event of a significant slowdown in economic growth and investment
due to a deterioration in security conditions resulting from a further
escalation of militant activity in the country. A prolonged period
of fiscal deterioration as a result of political pressure to spend the
country's oil-derived savings, or a sustained drop
in global oil prices, would also exert downward pressure on the
country's ratings.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in September 2008. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
These ratings were initiated by Moody's and were not requested by the
rated entities.
These rated entities or related third parties did not participate in the
rating process. Moody's was not provided, for purposes
of the rating, access to the books, records and other relevant
internal documents of the rated entity or related third party.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties not involved in the ratings, and public information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
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Please see Moody's Rating Symbols and Definitions on the Rating Process
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for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
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Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Weyinmi Omamuli
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Ltd.
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JOURNALISTS: 44 20 7772 5456
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Moody's assigns Ba3 ratings to Nigeria, stable outlook
