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Huge Debt Service Cost in Nigeria, Others, Worries Moody’s



  • Huge Debt Service Cost in Nigeria, Others, Worries Moody’s

The elevated public debt-service cost in Nigeria and some other countries in Africa calls for concern, Moody’s Investors Service stated in a report at the weekend.

The region’s debt-servicing cost on weighted-average basis increased to almost to 12.3 per cent of revenue in 2017 from seven per cent in 2013, and was expected to hover at around 13per cent in the medium term, one of the leading global rating agencies revealed.

Moody’s noted that while this largely reflects a sharp fall in revenue and increasing borrowing costs for oil exporters, particularly Nigeria, interest costs relative to revenue were escalating across the region.

Also, Moody’s stated that the outlook for sovereign ratings in Nigeria and other countries in sub-Saharan Africa, were negative for the coming 12-18 months, driven by the region’s subdued and fragile growth recovery, which also weighs on the prospects for fiscal consolidation and debt stabilisation.

It stated this in a report titled: “Sovereigns — sub-Saharan Africa, 2018 outlook negative amid subdued growth, elevated debt and political risks.”

“Our negative outlook for sub-Saharan African sovereigns reflects the region’s subdued growth recovery, fiscal challenges and heightened political risks,” Moody’s Vice President — Senior Analyst and the report’s co-author, Zuzana Brixiova said.

“Higher and more stable global growth will provide limited uplift to Africa’s growth because commodity prices are still low and there are domestic structural bottlenecks.

“Risks stemming from government balance sheet pressures and liquidity stress as well as external imbalances remain elevated, while domestic political tensions increase policy uncertainty and impede reforms.”

Moody’s expects growth in sub-Saharan Africa to accelerate to 3.5 per cent in 2018 from an estimated 2.6 per cent in 2017, supported by the strengthening global economy and a modest rise in commodity prices.

However, it noted that the recovery remains fragile, uneven and sub-par and barely above population growth. Falling productivity, reflecting relatively low investment and the challenging business environment, will also weigh on longer-term trends.

“In 2018, most Moody’s-rated sovereigns in the region are expected to stabilise their fiscal deficits, but at higher levels than were seen before the commodity price shock. The region is thus unlikely to see a decisive reversal in elevated debt levels given the countries’ consolidation challenges, increased interest costs and subdued growth.

“Debt accumulation is likely to slow in 2018 and beyond due to improved (but still relatively low) commodity prices and some fiscal consolidation, but a return to 2013 debt-to-GDP levels will be challenging at a time of modest growth in the region.

“Currency risks will remain heightened in countries with large shares of foreign currency public debt. Reserve buffers will provide only limited mitigation. As Sub-Saharan African countries approach the peak of maturing international debt in the early 2020s, refinancing risks will continue to rise,” it noted.

Government liquidity stress – a key driver of Moody’s past rating actions in the region, according to the report, remained heightened especially among commodity-dependent sovereigns. It continues to be driven by elevated fiscal deficits and challenging funding conditions, where greater reliance on domestic financing has increased borrowing costs.

It, however, noted that income levels have deteriorated in a number of countries in the region, increasing pressure on governments to extend subsidies, or constraining the government’s ability to remove subsidies as intended.

The report noted that high levels of urbanisation and sizeable young populations, if matched with skilled labour force and job creation, would accelerate industrialisation in Africa.

“It would also help raise productivity via innovation and economies of scale, particularly in middle-income countries in southern Africa. An emerging middle class would also strengthen aggregate domestic demand. Seizing the opportunities provided by these demographic trends (youth, urbanization, emergence of middle class) is not assured and hinges on delivering on broader structural reform agenda,” it added.

According to the agency, deteriorating wealth levels across the region would increase pressure on governments to implement populist measures, such as the 2017 decision to extend free higher education in South Africa. Moreover, it stated that a gradually expanding and more educated and globally interconnected middle class would increase calls for greater accountability and more prosperous, equitable and well governed economies.

“However, social tensions cannot be easily assuaged through either fiscal stimulus or redistributive spending given governments’ limited resources amid fiscal tightening. Droughts and rising food prices in eastern and southern Africa are often sources of unrest. Separately, long-serving political leaders amplify succession risk in Uganda and Rwanda.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China



Crude Oil

Oil prices showed signs of recovery on Thursday after a recent slump to a six-month low, with Brent crude oil appreciating by 1% to $75.06 a barrel while the U.S. West Texas Intermediate crude oil also rose by 1% to $70.05 a barrel.

However, investor concerns persist over sluggish demand in both the United States and China.

The market’s unease was triggered by data indicating that U.S. oil output remains close to record highs despite falling inventories.

U.S. gasoline stocks rose unexpectedly by 5.4 million barrels to 223.6 million barrels, adding to the apprehension.

China, the world’s largest oil importer, also contributed to market jitters as crude oil imports in November dropped by 9% from the previous year.

High inventory levels, weak economic indicators, and reduced orders from independent refiners were cited as factors weakening demand.

Moody’s recent warnings on credit downgrades for Hong Kong, Macau, Chinese state-owned firms, and banks further fueled concerns about China’s economic stability.

Oil prices have experienced a 10% decline since OPEC+ announced voluntary output cuts of 2.2 million barrels per day for the first quarter of the next year.

In response to falling prices, OPEC+ member Algeria stated that it would consider extending or deepening oil supply cuts.

Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman met to discuss further oil price cooperation, potentially boosting market confidence in the effectiveness of output cuts.

Russia, part of OPEC+, pledged increased transparency regarding fuel refining and exports, addressing concerns about undisclosed fuel shipments.

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Crude Oil

Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts



OPEC - Investors King

Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.

Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.

Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.

Despite this effort to tighten supply, market sentiment remains unresponsive.

“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.

Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.

Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.

Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.

Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.

The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.

Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.

Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.

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Crude Oil

U.S. Crude Production Hits Another Record, Posing Challenges for OPEC




U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.

The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.

The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.

Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.

This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.

While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.

The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.

Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.

Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.

This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.

In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.

However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.

Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.

While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.

The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.

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