A global rating agency, Fitch Ratings, has disclosed that Nigeria will continue to experience a slow recovery, as a result of the rebound in oil prices and the extension of services.
Fitch, which predicted that Nigeria’s GDP growth would average 2.2 per cent in 2019-2020, lower than its previous 10-year average of 4.2 per cent and the current ‘B’ median of 3.4 per cent.
According to the rating agency, it said high unemployment and inflation would constrain private consumption while investment was held back by tight credit supply, a weak business climate and regulatory uncertainty in the oil sector.
“A large infrastructure deficit, which is illustrated by acute power supply shortages and security challenges, also dampen the medium-term growth outlook,” it added.
It also stated that Nigeria’s long-term foreign-currency issuer default rating at ‘B+’ with a stable outlook.
Fitch said: “Nigeria’s ratings are supported by the large size of its economy, a track record of current account surpluses and a relatively low general government debt-to-GDP.
”This is balanced against poor governance and development indicators, structurally low fiscal revenues and high dependence on hydrocarbons. The rating is also weighed down by subdued GDP growth and inflation that is higher than in rating peers.
“However, the implicit subsidy of petrol prices (around 0.6 per cent of GDP in 2018), the gradual clearance of joint-venture cash call arrears (outstanding stock of one per cent of GDP at end-2018) and the conversion of government oil proceeds to naira at a below-market exchange rate continue to constrain budget receipts from hydrocarbon extraction,” it said.
It further said, “Nigeria’s particularly low non-oil fiscal revenues, averaging only 3.7 per cent of GDP over 2016-2018, are a key rating weakness, reducing the fiscal space and resulting in a high fiscal Brent breakeven price of $129 per barrel in 2019 and $149 in 2020, according to Fitch’s estimates.
“A two-thirds rise in the minimum wage entered into force in April and could cause pressures on public finances, particularly for cash-strapped state and local governments, although there is high uncertainty regarding its effective implementation date and fiscal cost.
”The government is contemplating offsetting measures, including a VAT rate increase, which faces strong opposition across the political spectrum.”