Moody’s senior analytical adviser for Africa, Aurelien Mali, has said that Nigeria is running the risk of a further downgrade in its ratings especially if the government continues its inability to ensure an increase in oil production in the medium term, Reuters reports. Moody’s already downgraded Nigeria to B1 with a stable outlook in April from BA3.
The Nigerian economy continues to suffer from a recession following its worst crisis in 25 years, caused by the plunge in the price of crude oil responsible for 10% of the country’s Gross Domestic Product (GDP).
The situation has not been helped by the repeated bombings of crude oil facilities by militants in the Niger Delta which has cut output by over 600,000 barrels per day. In addition, due to revenue dwn fall, Nigeria continues to shirk in its contributions to shared contracts and joint ventures with foreign and local oil firms.
This has led Shoreline Natural Resources to say that Nigeria will need at least $14 billion a year in new investment to maintain production at 2.2 million bpd, a level at which the national budget is based on.
If the government is able to pull off the 2.2 million bpd target however, there is hope of a rebound from the contraction the economy is currently facing. “With resumption of oil production and the dollars that should come, we expect that Nigeria would be able to accelerate the implementation of the budget. With an acceleration, we expect that (growth) could reach 2.5 percent next year,” Mali said.
In addition, Mali said reforms aimed at increasing the share of non-oil taxes as a percent of government revenues would be positive for ratings.