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Bond Market News
Pakistan and Nigeria Downgraded to CCC+ and B3
October 25, 2022
Pakistan was downgraded to CCC+ from B- due to an expected further deterioration in external liquidity and funding conditions due to the impact of floods, besides widening external deficits, shortage of forex reserves and other risks. Pakistan’s forex reserves stand at $7.6bn on 14 October 2022, equal to roughly a month of current external payments, down from more than $20bn at end-August 2021. Its current account deficit reached $17bn (4.6% of GDP) in the year ending June 2022 and its large external public maturities totaling $21bn, mostly to bilateral and multilateral creditors add to its pressures. While the nation has received some funding from the World Bank and ADB, it is unclear as to the degree of relaxation the IMF will allow for Pakistan’s programme targets.
Pakistan’s USD 7.375% 2031s were down 0.5 points to 30.7 cents on the dollar.
Nigeria was downgraded to B3 from B2 by Moody’s due to a significant deterioration in its finances and external position. Moody’s notes that Nigeria’s fiscal and external position did not benefit from higher oil prices (42% higher on average than in 2021) in 2022. This is due to the 32% drop in oil production since the beginning of the year. Also, the rating agency sees government debt affordability weakening further in future years from already weak levels. On top of this, Nigeria’s financial and capital outflows have exceeded its current account surplus, thereby eroding forex reserves. Nigeria’s forex reserves touched $37bn in September 2022, down $3bn since the beginning of the year. Further, Nigeria’s share of revenues that are consumed by interest payments is set to rise further. This figure is already exceptionally high in 2022 at 65% at the federal government level and 35% at the general government level, Moody’s highlights.
Nigeria 7.375% 2033s were down 0.7 points to 56.82, yielding 15.8%.
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