Nigeria’s economy will improve 2017 – Moody’s

ONE of the world’s leading credit rating agencies, Moody’s, has cheerful news for Nigerians in 2017.  It says the country’s economy and her dollar earnings are expected to improve in the new year.

The US-based top rating firm’s Vice President and Lead Analyst for Nigeria, Lucie Villa, said that Nigeria’s economy would bounce back to 2.5 per cent in 2017 from its 1.5 per cent contraction in 2016.

According to Villa,  “We expect Nigeria’s economic growth to bounce back to 2.5 per cent in 2017, supported by an ongoing recovery in oil production.

“The government’s balance sheet is strong, with debt at around 16.6 per cent of Gross Domestic Product in 2016. Also, despite its interest burden rising to 19.8 per cent of revenue, Nigeria’s capital markets remain a reliable and captive source of liquidity and funding for the government.”

Villa’s optimistic outlook largely agreed with the projections in Moody’s latest report, released last December. In the report, which rates Nigeria’s economy B1 (stable), the agency noted that the “stable outlook” was supported by the strength of the country’s balance sheet. In 2017 and 2018, the credit rating agency said it expected Nigeria’s balance of payments to move back into surplus.

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Moody’s, however, said Nigeria’s weak institutional framework, especially in terms of “the rule of law, government effectiveness and control of corruption,” would have a significant impact on its economic growth and fiscal strength, and thereby constrain the B1 rating.

“The country is still exposed to political risks arising from both the conflict with Boko Haram and recurrent attacks on oil infrastructures in the Niger Delta,” Villa added.

Moody’s also predicted that the Federal Government’s deficit would remain around two per cent in 2017 and 2018.

It said, “We forecast a general government budget deficit of three per cent of GDP in 2016, comprised of a two per cent of GDP Federal Government budget deficit and one per cent deficit split between state and municipal governments. We still assume that the authorities will not breach the statutory limit of three per cent imposed by the 2007 fiscal law, based on our view that they will reduce spending on a net basis if revenue collection underperforms.”

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The rating agency further said that two-thirds of 2017 real growth would come from the oil sector rebound alone, with a strong base effects expected in the second and third quarters.

“Nigeria’s large hydrocarbons reserves remain a key credit support: it has an estimated 37 billion barrels of oil (about 28 per cent of total African reserves) and nearly 34 billion of oil-equivalent in gas. Oil and gas exports tend to account for over 90 per cent of goods exports and a significant share of fiscal revenue (60-70% prior to the current oil shock). Our current oil price forecast are $45 per barrel in 2017 and $50 in 2018, compared to prices above $100 on average between 2010 and 2014,” the agency said.