Moody's Investors Service, a global credit ratings agency, has further downgraded Nigeria's rating due to concerns about the government's worsening fiscal and debt positions. The agency now rates the country at Caa1, which is a level lower and considered to be of poor standing with very high credit risk. This downgrade follows a previous one in October when the agency lowered Nigeria's local currency and foreign currency long-term issuer ratings as well as its foreign currency senior unsecured debt ratings to B3 from B2.
The agency cites Nigeria's deep-seated institutional vulnerabilities and social challenges as reasons for the downgrade. Additionally, the government's inability to access funding outside of Nigeria and subdued oil production are expected to weaken the country's external profile over time. The agency notes that the government's interest payment obligation will take approximately 50% of revenue over the medium term, compared to an estimated share of 35% last year, and expects government debt-to-GDP to soar to around 45% from 34% in 2022 and 19% in 2019.
This downgrade will likely make it harder and more expensive for Nigerian startups to access funding and invest, as investors may be more cautious about investing in the country due to the increased risk.
A lower credit rating means that a country is considered to be at a higher risk for investors and lenders. When a country's rating is downgraded, it can make it more difficult and expensive for that country to borrow money, as investors will demand higher returns on their investments to compensate for the increased risk. This can also affect local companies and startups, as they may find it harder to access funding and may have to pay more to borrow money.
In the case of Nigeria, the downgrade to Caa1 is particularly concerning because it is considered to be in the "non-investment grade" category, meaning that it is considered to be a very high risk for investors. This is likely to make it more difficult for Nigerian startups to access funding from investors, as they may be more cautious about investing in the country. Additionally, local companies and startups may find it more expensive to borrow money from banks or other financial institutions, as they may charge higher interest rates to compensate for the increased risk.
Furthermore, the downgrade by Moody's Investors Service reflects the Nigerian government's long-term foreign-currency and local-currency issuer ratings as well as its senior unsecured foreign debt ratings. This indicates that the government's ability to borrow and pay back debt is being questioned by the agency. The agency also cites Nigeria's deep-seated institutional vulnerabilities and social challenges as reasons for the downgrade. This highlights the economic and political instability that might affect the country's ability to repay debt.
Overall, the downgrade by Moody's Investors Service is a negative development for Nigerian startups, as it may make it harder and more expensive for them to access funding and invest. The country's deep-seated institutional vulnerabilities, social challenges, and the government's inability to access funding outside of Nigeria are all factors that may affect the country's ability to repay debt, which may increase the risk of default and further affect the country's economy and the ability of local companies and startups to access funding.
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