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Nigeria will continue to experience sluggish recovery – Fitch

A global ratings agency, Fitch Ratings, has said Nigeria will continue to experience a Sluggish Recovery, driven by the rebound in oil prices and the expansion of services.

Fitch predicted that the country’s GDP growth would average 2.2 per Cent in 2019-2020, below its previous 10-year average of 4.2 per cent and the current ‘B’ median of 3.4 per cent.

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.

The ratings agency affirmed Nigeria’s long-term foreign-currency issuer default rating at ‘B+’ with a stable outlook.

It 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.

According to the agency, the country’s fiscal performance mostly remains a function of fluctuations in oil revenues.

“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.

Fitch noted that public finances were vulnerable to disruptions to oil production caused by recurrent acts of vandalism or other force majeure affecting the country’s ageing oil infrastructure.

It 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.”

Source: The Punch

The post Nigeria will continue to experience sluggish recovery – Fitch appeared first on Energy News | Oil and Gas News.



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