The National Bureau of Statistics (NBS) has announced a contraction of 2.24% in Nigeria’s gross domestic product (GDP) in Q3.
The country slid into recession for the first time in 25 years in the second quarter following an economic crisis. The crisis was triggered by a slump in crude prices that badly affected finances. Crude sales make up two-thirds of government revenue.
The statistics bureau said the country’s oil production averaged at 1.63mbpd in the third quarter.
Analysts Predict Better Days
Meanwhile, analysts predict the economy can expand by 2.5% next year.
According to Moody’s senior analytical adviser for Africa, Aurelien Mali, the contraction will continue in Q4.
However, Mali said oil output will help Nigeria generate more dollars. If the country can keep output at 2.2mbpd, it can rebound from recession.
“With resumption of oil production and the dollars that should come, we expect that Nigeria would be able to accelerate the implementation of the budget. With an acceleration, we expect that (growth) could reach 2.5% next year.”
Moody’s downgraded Nigeria to B1 with a stable outlook in April from Ba3. Mali said government’s inability to ensure an increase in oil production in the medium term could exert negative pressure on its balance sheet. It will also trigger another rating action.
However, Mali said that a currency depreciation in June had compensated for government revenues. This is because the country took action before it had a much bigger gap in its income. Although, the currency weakness has not led to foreign inflows.
Oil accounts for around 10% of Nigeria’s GDP. Mali said reforms aimed at increasing the share of non-oil taxes as a percent of government revenues would be positive for ratings.
Recession Bites Hard
Africa’s largest economy is currently facing its worst crisis in 25 years. This was brought on by low oil prices which have slashed government revenue. It also hammered the currency and caused chronic dollar shortages frustrating businesses.
Oil minister Emmanuel Ibe Kachikwu said in September that production was recovering and had reached around 2 million barrels. This is after attacks by militants on oil installations cut output by over 600,000bpd.
Nigeria produces oil through sharing contracts and joint ventures with foreign and local firms. But it has often failed to fund its own contributions. Last week, it reached a deal to pay $5.1bn in unpaid bills to oil majors.
Oil producer Shoreline Natural Resources has said Nigeria will need at least $14bn a year in new investment to maintain production at 2.2mbpd. This is the level which the current national budget is based on.