Barely two weeks after meeting with top government officials, Fitch Ratings has passed a negative verdict on the economy, saying that its weak state will worsen Nigeria’s debt profile.
The projection, which means that the end to the lingering economic challenge is not in the near term, also raises risk alert to potential investors against the country’s quest to attract foreign investments.
Fitch, noting that Nigeria’s 2016 budget envisaged an increase in capital expenditure to stimulate the economy, recalled that disbursement was delayed by the late adoption of the plans and now the challenges of securing external financing.
But notwithstanding the hope of securing financing from multilateral development banks and bilateral sources, the timing remains unsure and disbursements are unlikely until 2017.
“We think the debt burden is sustainable, but it is increasing, while government revenues have fallen as a proportion of GDP,” the agency said.
Already, the general government debt and interest as a percentage of revenues, estimated at 270% and 23% respectively, are considerably higher than the ‘B’ category median.
“We identified fiscal sustainability as a rating sensitivity when we downgraded Nigeria’s sovereign rating to ‘B+’/Stable from ‘BB-’/Negative in June.
“The downgrade reflected increased fiscal and external vulnerability due to the sharp fall in oil revenue and the authorities’ indecisive policy response,” the company said.
According to the agency, the combination of weak performance in the first half of the year and continuing policy issues- implementing the new foreign-exchange regime and delays in the disbursement of the 2016 budget are contributors.
“We expect real GDP to contract by one per cent in 2016, compared with our earlier forecast of a 1.5% expansion. We expect a limited bounce back and forecast a recovery to 2.6% next year, with downside risks if dollar liquidity remains tight.
“The medium-term growth outlook remains significantly lower than the 5.6% growth seen in 2010-14. Our revisions incorporate a weaker-than-anticipated first half performance,” Fitch said.
Recall that Nigeria slipped into recession in the second quarter of the year over oil crisis-induced fiscal failures, as well as it implications on monetary policies.
Fitch noted that Nigeria’s medium-term growth outlook remains significantly lower than the 5.6% growth seen in 2010-14.
In the second quarter, Gross Domestic Product (GDP) declined to negative 2.1% year-on-year, the second consecutive fall, mainly due to falling oil production.
Already, there are projections that while improved situation in the Niger Delta region will prevent further production loss, the levels are not likely to reach that of the first quarter this year.
“A sharp economic downturn is negative for Nigeria’s sovereign credit profile, which has been supported in recent years by strong, stable real GDP growth.
“It will slow the non-oil revenue growth that the 2016 budget anticipates will fund a portion of growth-enhancing infrastructure expenditure. Widening deficits are mitigated by low government debt,” it added.
Source: Guardian
THE ROTTEN FISH: CAN OF WORMS OPENED OF APC & TINUBU'S GOVERNMENT OVER NIGERIA'S ECONOMIC DOWNTURN
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