Friday, 6 December 2019

MOODY DOWNGRADES NIGERIA’S OUTLOOK FROM STABLE TO NEGATIVE

Lukman Otunuga,
Senior Research Analyst at FXTM

Investor sentiment towards the Nigerian economy was dealt a blow after Moody’s changed the outlook on the government of Nigeria’s ratings to negative from stable.

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Given how the negative outlook reflects Moody’s view of increasing risks to the government’s fiscal strength, this should act as another wakeup call for the nation to diversify and move away from oil reliance. Weak government finances exacerbated by depressed oil prices and sluggish economic growth may disrupt fiscal consolidation. With both monetary and fiscal policy needed to support the Nigerian economy, the mounting pressures from the fiscal side must not be overlooked.

Speaking of Oil prices, the commodity spiked to levels not seen in over two months above $59.05 on Thursday. This comes after the Organization of Petroleum Exporting Countries (OPEC) and its allies reached a deal in principle to cut output by an extra 500,000 barrels per day in the first quarter of 2020.

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However, prices later retraced after OPEC+ failed to offer clarity as it lacked key details of the agreement for deeper production cuts. One important takeaway from the proposal is that Russia will be allowed to exclude its condensate volumes from the terms of production, which could see oil prices trade lower. Another complication in the OPEC deal remains compliance, with some nations frequently pumping above their target levels. Until there is a solution to improve compliance, Oil is positioned to depreciate despite the deeper cuts.

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