12 June 2019

Nigeria: Buhari's Second Term - Fitch Sees Weak Economy Outlook

Photo: Wikimedia

Global rating company, Fitch Rating, yesterday, affirmed Nigeria's rating at B+, stable outlook, saying that President Buhari's second term will be marked with implementation of piecemeal reforms and slow progress in tackling impediments to economic growth.

The company also projected further widening of the federal government's deficit spending and total debt to 3.8 percent and 28.2 percent of the nation's the Gross Domestic Product (GDP) in 2019.

Fitch also projected that Nigeria's GDP growth rate will hover around 2.2 percent for the next two years, below the 10-year average of 4.2 percent.

In a statement released yesterday announcing its latest rating on Nigeria, 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 (GG) debt-to-GDP."

However, against these advantages, the agency further stated: "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.

"Nigeria will continue to experience a sluggish recovery driven by the rebound in oil prices and the expansion of services.

"Fitch forecasts GDP growth to average 2.2 percent in 2019-2020, below its previous 10-year average of 4.2 percent and the current 'B' median of 3.4 percent.

Buhari, Politics

While commenting on the outcome of the general elections and likely impacts on policy formulation and implementation as well as the nation's economic growth, Fitch said: "The 2019 general and gubernational elections passed relatively smoothly, despite technical disruptions and episodes of violence.

"The incumbent Muhammadu Buhari won a second term and his ruling All Progressives Congress (APC) regained its majority in both chambers of parliament.

"This could facilitate policy implementation, but weak party discipline in parliament and frequent disagreements between the presidency and legislature point to a continued high risk of delays to parliamentary approval of key legislation.

"Fitch expects policy continuity with the implementation of only piecemeal reforms, resulting in slow progress on tackling long-standing impediments to growth and weaknesses in macroeconomic management."

While highlighting constraints to generating adequate revenue to fund the budget, the global rating company projected further widening of the federal government deficit spending to 3.8 percent of the GDP.

It stated: "Nigeria's fiscal performance mostly remains a function of fluctuations in oil revenues. However, the implicit subsidy of petrol prices (around 0.6 percent of GDP in 2018), the gradual clearance of joint-venture (JV) cash call arrears (outstanding stock of 1.0 percent 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. Fitch estimates that the GG deficit narrowed to 3.6 percent of GDP (federal government, FGN: 2.3 percent excluding transfers to state and local governments, SLGs) in 2018 from 4.5 percent in 2017 (FGN: 3.2 percent), mostly reflecting the recovery in oil prices.

"Fitch forecasts the GG deficit to widen to 3.8 percent of GDP (FGN: 2.6 percent) in 2019 and further to 4.6 percent in 2020 (FGN: 3 percent ) as the rise in oil production with the coming on stream of the Egina oilfield will be offset by the decline in oil prices under our baseline. Public finances are vulnerable to disruptions to production caused by recurrent acts of vandalism or other force majeure affecting Nigeria's aging oil infrastructure."Buhari, Politics

While commenting on the outcome of the general elections and likely impacts on policy formulation and implementation as well as the nation's economic growth, Fitch said: "The 2019 general and gubernational elections passed relatively smoothly, despite technical disruptions and episodes of violence.

"The incumbent Muhammadu Buhari won a second term and his ruling All Progressives Congress (APC) regained its majority in both chambers of parliament.

"This could facilitate policy implementation, but weak party discipline in parliament and frequent disagreements between the presidency and legislature point to a continued high risk of delays to parliamentary approval of key legislation.

"Fitch expects policy continuity with the implementation of only piecemeal reforms, resulting in slow progress on tackling long-standing impediments to growth and weaknesses in macroeconomic management."

While highlighting constraints to generating adequate revenue to fund the budget, the global rating company projected further widening of the federal government deficit spending to 3.8 percent of the GDP.

It stated: "Nigeria's fiscal performance mostly remains a function of fluctuations in oil revenues. However, the implicit subsidy of petrol prices (around 0.6 percent of GDP in 2018), the gradual clearance of joint-venture (JV) cash call arrears (outstanding stock of 1.0 percent 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. Fitch estimates that the GG deficit narrowed to 3.6 percent of GDP (federal government, FGN: 2.3 percent excluding transfers to state and local governments, SLGs) in 2018 from 4.5 percent in 2017 (FGN: 3.2 percent), mostly reflecting the recovery in oil prices.

"Fitch forecasts the GG deficit to widen to 3.8 percent of GDP (FGN: 2.6 percent) in 2019 and further to 4.6 percent in 2020 (FGN: 3 percent ) as the rise in oil production with the coming on stream of the Egina oilfield will be offset by the decline in oil prices under our baseline. Public finances are vulnerable to disruptions to production caused by recurrent acts of vandalism or other force majeure affecting Nigeria's aging oil infrastructure."

Buhari, Politics

While commenting on the outcome of the general elections and likely impacts on policy formulation and implementation as well as the nation's economic growth, Fitch said: "The 2019 general and gubernational elections passed relatively smoothly, despite technical disruptions and episodes of violence.

"The incumbent Muhammadu Buhari won a second term and his ruling All Progressives Congress (APC) regained its majority in both chambers of parliament.

"This could facilitate policy implementation, but weak party discipline in parliament and frequent disagreements between the presidency and legislature point to a continued high risk of delays to parliamentary approval of key legislation.

"Fitch expects policy continuity with the implementation of only piecemeal reforms, resulting in slow progress on tackling long-standing impediments to growth and weaknesses in macroeconomic management."

While highlighting constraints to generating adequate revenue to fund the budget, the global rating company projected further widening of the federal government deficit spending to 3.8 percent of the GDP.

It stated: "Nigeria's fiscal performance mostly remains a function of fluctuations in oil revenues. However, the implicit subsidy of petrol prices (around 0.6 percent of GDP in 2018), the gradual clearance of joint-venture (JV) cash call arrears (outstanding stock of 1.0 percent 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. Fitch estimates that the GG deficit narrowed to 3.6 percent of GDP (federal government, FGN: 2.3 percent excluding transfers to state and local governments, SLGs) in 2018 from 4.5 percent in 2017 (FGN: 3.2 percent), mostly reflecting the recovery in oil prices.

"Fitch forecasts the GG deficit to widen to 3.8 percent of GDP (FGN: 2.6 percent) in 2019 and further to 4.6 percent in 2020 (FGN: 3 percent ) as the rise in oil production with the coming on stream of the Egina oilfield will be offset by the decline in oil prices under our baseline. Public finances are vulnerable to disruptions to production caused by recurrent acts of vandalism or other force majeure affecting Nigeria's aging oil infrastructure."

"High unemployment and inflation will constrain private consumption while investment is 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."

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