NIGERIA’S ECONOMY OUTLOOK STABLE: FITCH RATINGS
International rating agency, Fitch Ratings, has assigned a stable outlook to Nigeria’s economy.
Fitch, in a report released on Wednesday, affirmed that “Nigeria’s long-term foreign and local currency International Depository Receipts and senior unsecured bond ratings at ‘BB-‘ and ‘BB’ respectively.”
The agency also said, “Nigeria’s short-term foreign currency International Depository Receipts at ‘B’ and the country ceiling at ‘BB-‘.”
The affirmation, Fitch said, reflected the fact that the nation’s Gross Domestic Product growth slowed to 6.4 per cent in the half year of 2013 but has shown resilience in the face of exogenous shocks, according to a Reuters report on Wednesday.
The exogenous shocks, according to Fitch, include the severe floods in 2012, which hit agricultural output; security problems especially in the North earlier this year; and increased oil theft and vandalism and the consequent repair shutdowns, which have caused oil output to contract for the second year in a row.
Fitch said, “The non-oil economy has slowed but still grew by 7.9 per cent in 2012 and 7.6 per cent in the first half of 2013. Non-oil growth should pick up in the second half of 2013 as normal weather has resumed and the authorities have responded to security problems. “Reforms in the electricity and agriculture sectors could start to boost potential growth. Inflation has been in single digit all year – the lowest in five years and the longest stretch of single digit inflation since 2008. Policy rates are unchanged.”
Fitch noted that the Central Bank of Nigeria had the twin aims of achieving single-digit inflation and maintaining exchange rate stability as public finances remain comfortable.
The rating agency estimated a general government deficit of around 1.8 per cent of GDP this year and next.
It added, “Both oil and non-oil revenues are under budget and the Excess Crude Account has been tapped to compensate. Capital spending also remains under budget. The draft 2014 budget plans ambitious fiscal consolidation, with lower oil production and benchmark oil prices and lower spending than the 2013 budget.”
However, Fitch expects that oil production will likely fall short again, and the final budget that will emerge from the National Assembly is likely to be more expansionary.
Nevertheless, Fitch expects general government debt to remain stable at just over 20 per cent of the GDP.
It added, “Nigeria’s sovereign and overall external balance sheets, current account surplus, debt service ratio and external liquidity are all stronger than the ‘BB’ category medians.
“Foreign reserves rose steadily in early 2013 but have been falling since May due to reduced oil output, prompting ECA drawdown, and global market turbulence, which has reduced foreign appetite for NGN paper (though net inflows have continued).”
According to Fitch, the CBN intervened to support the naira when it came under pressure mid-year after the United States’ Fed-tapering turbulence, although reserves have held up much better than many large emerging markets.
The international rating agency said that strong vested interests would make structural reform in the country a continual struggle, especially with elections in 2015.
It said that Nigeria’s ratings remained constrained by weak governance, low per capita income and vulnerability to oil price volatility.
Fitch, however, said it assumed the current stance of relatively conservative macro policy and incremental structural reform would remain in place in the forecast period, which goes up to the election year of 2015.
It also noted that no significant acceleration in non-oil growth or net exports had been assumed nor any further reduction in petroleum subsidies, which would benefit public and external finances.
It added, “No specific assumption is made about the passage of the Petroleum Industry Bill before the election, but failure to do so is assumed not to have any serious short-term impact on oil production. “However, oil theft and associated capacity shutdowns are assumed to continue, although not to worsen, meaning average oil output will remain significantly below potential of 2.6mb/d.
“It is also assumed that there is no major resurgence of violence in the Delta region. The Boko Haram terrorist insurgency is assumed to remain contained and not to have serious consequences for economic performance.”
Last week, Standard and Poors’, an international rating agency, had said that the Nigerian economy remained strong with a stable macro-economic outlook
The Minister of Finance, Dr. Ngozi Okonjo-Iweala, stated this at a joint press briefing with the Central Bank Governor, Malam Sanusi Lamido.
The briefing was held at the Annual Meeting of the World Bank and the International Monetary Fund in Washington DC.
Okonjo-Iweala said that the rating had also confirmed the Fitch rating in 2012, which put Nigerian economy in the positive light.
“We have the outcome of the 2013 rating, which is a very positive one; the rating confirms the ongoing rating stance which is BB minus with a stable outlook.
“So, they have confirmed that rating we had last year stands, which means that many positive things are happening in this economy.
“They have also acknowledged the challenges we have, but the summary is that in spite of these challenges, they think that the Nigerian economy is strong and the macro-economic indicators strong.
“The monetary policy and fiscal stance are strong enough for us to maintain the very good rating we had before,” she said.
On the fiscal side, she said the rating agency said Nigeria’s GDP growth remained strong in 2013 through 2016 buoyed by non-oil sector growth.
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