Fitch Ratings has revised the Outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at ‘B’.
On the reason for the upgrade; information available on the firm’s website revealed that a decrease in the level of uncertainty surrounding the impact of the global pandemic on the Nigerian economy, increasing relative stability in oil prices, easing of global funding conditions, and domestic restrictions on movement have all played a key role in the new outlook.
The latest rating is based on some underlying assumptions such as; the report expects global economic trends to develop as outlined in Fitch’s most recent Global Economic Outlook, published 7 September 2020. The report also projected Brent oil prices to average USD41/barrel in 2020, USD45/barrel in 2021, and USD50/barrel in 2022. In addition, the report expects Nigeria’s oil production volume to average 1.93mbpd in 2020, 1.87mbpd in 2021, and 2mbpd in 2022, all things being equal.
According to the report, Nigeria recorded an ESG score of 5 for both political stability and rule of law, institutional, and regulatory quality. The country also recorded an ESG score of 4 in both human rights and freedom and creditors’ rights.
Recall that the key evaluation criteria for Fitch ratings of either positive or negative are usually; external finances, macroeconomic policies, and public finance.
On the external finance criterion, the report stated that; “Nigeria has navigated external liquidity pressures from the shock, through partial exchange rate adjustment combined with de facto capital flow management measures and foreign-currency (FC) restrictions, while disbursement of external official loans has supported the level of international reserves. Though external vulnerability persists from currency overvaluation and a possibly large FC demand backlog, this is adequately captured by the ‘B’ rating, in our view,”
In terms of monetary policy which is a subset of macroeconomic policies, the report highlighted that; “The Central Bank of Nigeria (CBN) continues to prioritize exchange rate stability over other policy goals, in Fitch’s view. A 6% depreciation in March of the Investor and Exporter (I&E) exchange rate, at which most FC transactions are carried out fell short of fully correcting the naira’s appreciation by about 35% in real terms, between mid-2016 and February 2020. Steep real appreciation has been driven by persistent double-digit inflation, which has offset gains from the devaluations in 2016 and 2017. Meanwhile, the CBN has achieved progress towards its stated goal of unifying the exchange rate, following a cumulative 19% two-step devaluation of the ‘official’ exchange rate, which is mostly used for the government’s and the oil sector’s FC transactions.”
On the fiscal policy and public earnings, the report added that; low fiscal revenues are a major credit weakness. GG receipts averaged 6.8% of GDP in 2015-2019, well below the current ‘B’ median of 22%. Revenues will benefit from the removal of the fuel subsidy, which has cumulatively cost the budget around 7% of 2019 GDP in 2016-2019.
The government has affirmed its firm commitment to this reform as well as its intention to continue phasing out costly electricity subsidies. However, the energy price reform faces strong opposition from labor unions, and the authorities have reinstated subsidies in the past, in response to social protests.
Insecurity: FG to implement town hall meetings to reach a national consensus
The meetings are set to address the twin issues of insecurity and its concomitant effect on national unity and cohesion.
The Federal Government announced the launch of town hall meetings to address the twin issues of insecurity and its concomitant effect on national unity and cohesion.
This was disclosed by the Minister of Information, Lai Mohammed, at the Town Hall Meeting in Kaduna on Thursday, themed “Setting Benchmarks for Enhanced Security and National Unity in Nigeria.”
What the Minister is saying
“The correct starting point towards addressing these myriads of problems is the building of an “elite consensus” on the security, unity, indissolubility, and peaceful existence of Nigeria.
“Such elite consensus had worked in the past. Can we make it work now and proffer solutions in order to stave off the threats to our unity as a nation?” he said.
The Minister disclosed that the meetings are necessary to bring all critical stakeholders together to deliberate on the issues and possibly reach a consensus on the way forward.
“We expect this Town Hall meeting to develop concrete, implementable resolutions because a lot of talks and postulations had taken place with little or no requisite outcome.”
In case you missed it
- Former Vice President, Atiku Abubakar warned that the rising insecurity in Nigeria is a result of rising youth unemployment. He urged Nigeria to tackle out-of-school children cases, pay a monthly stipend to poorer families, incorporate youths who are above school age into massive public works programmes and others.
- Senator Ali Ndume insisted that the Federal Government needs to increase its total military spending to be able to tackle the rising insecurity in Nigeria which has seen a number of school students in 2021 kidnapped by bandits.
IMF lifts 2021 global GDP growth to 6%
The group also warned that economic recoveries are diverging dangerously across and within countries.
The International Monetary Fund has lifted its global growth outlook to 6% in 2021 (0.5% point upgrade) and 4.4% in 2022 (0.2 percentage point upgrade), after an estimated historic contraction of -3.3% in 2020 due to the effects of the COVID-19 pandemic. This disclosure was made on the organisation’s website on Tuesday.
The group also warned that economic recoveries are diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliance on tourism do less well.
What the IMF is saying
“The upgrades in global growth for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly to a sizeable upgrade for the United States (1.3 percentage points) that is expected to grow at 6.4 percent this year.
This makes the United States the only large economy projected to surpass the level of GDP it was forecast to have in 2022 in the absence of this pandemic.
China is projected to grow this year at 8.4 percent. While China’s economy had already returned to pre-pandemic GDP in 2020, many other countries are not expected to do so until 2023.”
On divergent recoveries
The IMF stated that divergent recovery paths are likely to create wider gaps in living standards across countries compared to pre-pandemic expectations.
“The average annual loss in per capita GDP over 2020–24, relative to pre-pandemic forecasts, is projected to be 5.7 percent in low-income countries and 4.7 percent in emerging markets, while in advanced economies the losses are expected to be smaller at 2.3 percent,” they said.
“Faster progress with vaccinations can uplift the forecast, while a more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade. Multispeed recoveries could pose financial risks if interest rates in the United States rise further in unexpected ways.“
For Africa, IMF forecasts economic growth of 3.4% in 2021 and 4% by 2022, Nigeria is expected to grow by 2.5% in 2021 and 2.3% by 2022, while South Africa is projected to hit growths of 3.1% and 2.0% for the respective years in focus.
In case you missed it
The International Monetary Fund (IMF) identified some factors that hamper the economic recovery of low-income countries from the devastating impact of the coronavirus pandemic, factors including access to vaccines, limited policy space to respond to the crisis, the lack of means for extra spending, pre-existing vulnerabilities such as high levels of public debt in many low-income countries and sometimes weak, negative, total factor productivity performance in some low-income countries. These factors continue to act as a drag on growth.
Nairametrics | Company Earnings
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