Moody’s Investors Service in its annual report released on Monday said that Nigeria’s economic fundamentals will strengthen the recovery, with real growth of 3.3 per cent in 2018 and 4.5 per cent in 2018.
The rating agency also said that Nigeria’s (B2 stable) credit profile is constrained by the continued exposure of the sovereign balance sheet to shocks, weak institutions and elevated deficits.
This new development, was contained in the rating agency’s Global Credit Research released on Monday that Africa’s largest economy’s credit strengths include the large size of its economy and robust medium-term growth prospects supported, in particular, by its domestic demand.
Moody also projected a general government budget deficit of 3.6 per cent of GDP in 2017, down from 4.7 per cent in 2016, in 2018, the deficit will decline only slightly to 3.2 per cent of GDP, comprising a 2 per cent of GDP Federal Government budget deficit and around 1 per cent of GDP deficit at the state and municipality levels, as well as arrears that are likely to be split between the three levels of government.
According to the report, “Government of Nigeria — B2 stable, Annual credit analysis”, is available on www.moodys.com. Moody’s subscribers can access the report using the link at the end of this press release.
The research is an update to the markets and does not constitute a rating action. “Only a durable increase in non-oil revenue will improve Nigeria’s resilience to oil price volatility and increase the realisation rates of capital spending on the large infrastructure projects that are crucial for Nigeria’s economic development,” said Aurélien Mali, a Moody’s Vice President — Senior Credit Officer and co-author of the report.
According to the report,”Until it does, the government’s balance sheet will remain exposed to further shocks. Deficits will remain elevated and debt affordability will remain challenged.
This exposure will persist, despite recent improvements in the economy, which are primarily cyclical and related to the strengthening of the oil sector.” Nigeria’s economy continues to adjust to the loss of more than 50 per cent of its foreign-currency earnings.
The continuing recovery in oil production underpins Nigeria’s more robust medium-term prospects. With a re-balanced economy, Moody’s anticipates that a further consolidation of Nigeria ranks near the bottom of many international surveys assessing institutional strength and its scores are among the weakest within Moody’s rated universe.
Meanwhile, the federal government has made significant gains in terms of governance and transparency in the oil sector. There has been also no further build-up of arrears on cash calls in Joint Ventures in 2017 beyond those recorded previously which sends a strong positive signal to international oil companies present in Nigeria.
The sharp decline in oil prices from mid-2014 severely weakened Nigeria’s public finances. General government revenue halved to 5.3% in 2016 from 10.5% of GDP in 2014.
However, since late 2015, the authorities have stepped up efforts to increase non-oil revenue in response to a significant deterioration in public finances. Earlier in November, the Federal Ministry of Finance (FMF), Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) jointly rejected the ratings’ agency’s downgrade of Nigeria by Moody‘s from a B1 stable to a B2 stable rating.
The ratings’ agency, as at the time, had cut Nigeria’s long-term foreign-currency bond to B1 from Ba3 and kept its outlook stable, saying Nigerian efforts to broaden non-oil revenue had been unsuccessful.
The local-currency rating was unchanged at Ba1. But the Nigeria’s fiscal and the monetary authorities were seen coming together and said that this is equivalent to the nation’s existing B/Stable Outlook rating from S&P and slightly lower than Nigeria’s B+/Negative Outlook rating from Fitch. In a mail response to this development, the Federal Government said:
“While we respect the right of Moody’s to make this decision, we strongly disagree with the premise; and must address some of the conclusions upon which the decision rests.
“Since Nigeria was last rated by Moody’s (as B1 stable) in December 2016, Nigeria has successfully emerged from a protracted recession and recorded important improvements across a broad range of indices, including; a return to economic growth of 0.55 per cent in Q2 2017, and returning business confidence, as evidenced by a PMI index of 55.0”, the Federal Government stated. The Federal Government further explained that there is a stable foreign exchange window for importers and exporters, with improving liquidity and convergence of the parallel and official rates.
