The government of Niger saw its credit ratings downgraded deeper into junk territory by Moody’s Investors Service amid economic and financial sanctions occasioned by last week’s military coup.
The global credit rating agency cut Niger’s long-term foreign and local currency issuer ratings two notches to ‘Caa2’ from ‘B3’ and warned that another downgrade is possible.
It said the downgrade was prompted by economic and financial sanctions imposed by the Economic Community of West African States (ECOWAS) and by the West African Economic and Monetary Union (WAEMU) on July 30 on the government of Niger in the wake of the military coup on July 26.
The sanctions include the suspension of all commercial and financial transactions between ECOWAS member states and Niger as well as the freeze of assets of the Republic of Niger in ECOWAS central banks and commercial banks, it said in a statement on Wednesday.
Moody’s said if maintained, these sanctions will likely prevent Niger from making upcoming principal or interest payments to creditors outside the country which would constitute a default under Moody’s definition.
“A key driver of the downgrade is also the deterioration in Niger’s institutions and governance strength reflected in the suspension of the constitutional order, with immediate repercussions on the government’s access to international donor support and security cooperation which otherwise provide a key support to Niger’s credit profile,” it said.
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The decision to place the ratings on review for further downgrade reflects the very fluid political situation that could deteriorate further if negotiations between Niger’s military-led government on the one side and ECOWAS, WAEMU and the international community on the other side, do not quickly reach an agreement, according to rating agency.
It said the potential resort to a use of force announced by ECOWAS to restore the constitutional order in Niger could lead to a confrontation with other military-led regimes in Mali and Burkina Faso that have pledged support to Niger’s military leaders, exacerbating security risks in Niger and within the region more broadly.
“In addition, the longer sanctions including border closures and freeze of service transactions remain in place, the greater the adverse economic repercussions within the landlocked country,” it added.
Moody’s lowered the local currency (LC) ceiling to B2 from Ba3, and the foreign currency ceiling to B3 from B1.
It said the three-notch gap between the LC ceiling and the sovereign rating reflected Moody’s assessment of the relatively large footprint of the government in the economy, a weak business environment, deteriorating governance and institutional capacity in the wake of the military coup and very high exposure to political risks, albeit somewhat mitigated by Niger’s WAEMU membership that supports its policy effectiveness assessment.
