Economy
Fitch Affirms Nigeria at ‘B+’ with Negative Outlook
By Modupe Gbadeyanka
One of the leading rating agencies in the world, Fitch Ratings, has affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’ with a Negative Outlook.
A statement issued yesterday by the firm explained that Nigeria’s ratings were supported by its large and diversified economy, significant oil reserves, its net external creditor position, low external debt service ratio and large domestic debt market.
According to Fitch, these were balanced against relatively low per capita GDP, an exceptionally narrow fiscal revenue base and a weak business environment.
It added that the Negative Outlook reflects the downside risks from rising government indebtedness, and the possibility of a reversal of recent improvements in foreign currency (FX) liquidity and a faltering of the still fragile economic recovery.
Fitch forecasts growth of 1.5% in 2017 and 2.6% in 2018, following Nigeria’s first contraction in 25 years in 2016. GDP growth continued to contract in 1Q17, but by less than in the previous four quarters.
The recovery will be driven mainly by increased FX availability to the non-oil economy and fiscal stimulus, as higher oil revenue and various funding initiatives have raised the government’s ability to execute on capital spending plans.
However, the FX market remains far from fully transparent, domestic liquidity has also become a constraint, and the growth forecast is subject to downside risks. Inflation remains high at 16.1% in July 2017, but Fitch projects it to decline to 11% in 2019.
Crude oil production rose to 1.8 million barrels per day (mbpd) in July 2017, from 1.5 mbpd in December 2016; the increase was driven by the lifting of force majeure at the Forcados export terminal and the completion of maintenance at both Forcados and the Bonga oil field.
Fitch has revised down its expectation of full-year average production to 1.8 mbpd, which is about equal to 2016 production.
Separately, Fitch notes that the imposition of an OPEC quota may cap Nigeria’s crude production at 1.8mbpd, which could limit the oil sector’s upside potential. However, as it excludes condensate production, the quota should not affect Nigeria’s near-term production potential.
In April 2017, the Central Bank of Nigeria (CBN) introduced the Investors & Exporters (I&E) currency window and gradually introduced further measures to improve the liquidity of this instrument.
It also intervenes actively to support the currency while keeping domestic liquidity conditions tight.
In addition, higher oil prices and increased portfolio and FDI inflows have enabled the CBN to increase its provision of FX liquidity to the market. As a result, the parallel exchange rate began to converge towards the I&E rate, currently at around NGN360 per USD, and foreign currency liquidity shortages eased.
Most activity now occurs on the I&E window, and Fitch believes that the I&E rate should now be considered the relevant exchange rate.
Fitch forecasts the general government fiscal deficit to rise slightly to 4.5% of GDP in 2017 from 4.4% in 2016. Tax revenue in the first five months of 2017 underperformed budget expectations, as in 2015-16. The current Medium Term Expenditure Framework envisages a combined NGN3.5 trillion of capital expenditures in 2017 and 2018.
In 2016, with a budget year that ran to May 2017 the government executed approximately N1.2 trillion of the N1.6 trillion forecast in the 2016 budget. Improved financing will see a stronger execution of capital expenditure plans in 2017 and subsequent years. As oil production rises and the overall economy recovers, Fitch expects that higher revenues will drive a narrowing of the general government deficit to 3.4% in 2018.
Nigeria’s general government debt stock is low at 17% of GDP at end-2016, well below the ‘B’ median of 56% of GDP, and Fitch expects only a moderate increase to 20% of GDP at end-2017.
However, low revenues present a risk to public debt sustainability. General government debt to revenue, at 297% at end-2016, is already above the ‘B’ category median of 227% and Fitch forecasts it to increase to 325% in 2017. The ratio is even higher at the federal government level.
Nigeria’s current account surplus is expected to widen slightly to 1.0% of GDP in 2017, from 0.7% in 2016.
Fitch says it expects exports to increase by about 30% in 2017 and an additional 10% in 2018, as oil production and prices increase.
However, imports, which fell by over 30% in 2016, will also rise as dollar availability increases and the non-oil economy recovers.
The international reserves position has increased to USD30.8 billion as of end-July 2017 and it will be bolstered by expected external financing flows. Part of the reserves may be encumbered in forward contracts.
The economic contraction in 2016 and tight FX and naira liquidity weakened asset quality in the Nigerian banking sector. Non-performing loans rose to 12.8% at end-2016, up from 5.3% at end-2015. Rising impairment charges from bad loans have in turn led to capital adequacy ratios falling to 14.8% in 2016, from 16.1% at end-2015. The new FX window has aided FX liquidity for banks in 2017, but credit to the private sector (adjusted for FX valuation effects) is declining.
Nigeria’s ratings are constrained by weak governance indicators, as measured by the World Bank, as well as low human development and business environment indicators and per capita income.
By Adedapo Adesanya
Crude production under the collective Organisation of the Petroleum Exporting Countries (OPEC ) fell in May to its lowest level in at least 37 years as the blockade of Iran by the United States and disruptions in the Persian Gulf, continued to limit output.
According to a Bloomberg survey released on Friday, output from the organisation’s 11 current members, including Nigeria, dropped by 1.22 million barrels per day to 16.33 million barrels per day last month.
Iran accounted for more than half of the decline. The data excludes the United Arab Emirates (UAE), which departed the cartel last month after six decades of membership.
War between a US-Israeli alliance and Iran has reduced oil supplies from the Middle East, largely closing the Strait of Hormuz waterway. Saudi Arabia, Iraq, the UAE and Kuwait have been forced to cut crude production. Iranian shipments face additional pressure following a US blockade of its ports imposed in mid-April.
Iranian output fell by 710,000 barrels per day to a five-year low of 2.34 million barrels per day in May, the survey showed. Central Command reported that US forces have redirected 127 commercial vessels to enforce the blockade of all maritime traffic entering and exiting Iranian ports.
Kuwait recorded the second-largest decline last month, with production falling by 310,000 barrels per day to 490,000 barrels per day, less than one-fifth of pre-war levels. Saudi Arabia, the group’s leader, saw output decrease by 240,000 barrels per day to 6.57 million barrels per day.
The production reductions have not prevented OPEC and its allies from raising quotas over recent months, continuing a year-long process of restoring output halted several years ago.
This comes ahead of a meeting scheduled to be held on Sunday, June 7, where a sub-group of seven members is expected to increase targets by 188,000 barrels again in July. The session is one of four online meetings OPEC and its partners plan to hold that day.
Delegates indicated the alliance has plans for two additional monthly quota increases in August and September. UAE output rose by 300,000 barrels per day to 2.44 million barrels per day in May, according to the survey.
By Aduragbemi Omiyale
The 2025 third quarter Budget Implementation Report from the Budget Office of the Federation has shown that the federal government exceeded the funds allocation for repayment of debts for the first nine months of the fiscal year by about 18 per cent.
In a report by Punch, the sum of N10.74 trillion was budgeted for debt servicing between January and September 2025, but the government used N12.63 trillion for the purpose, N1.90 trillion or 17.65 per cent more than the allocation for the year.
The funds were spent on domestic debts, foreign debts and sinking fund by the central government in nine months.
Business Post reports that for the whole year, the amount approved by the National Assembly and signed by President Bola Tinubu for debt repayments was N14.31 trillion.
Looking at the nine-month figures, domestic debt service gulped N6.23 trillion, exceeding its N5.39 trillion provision, while foreign debt service was N6.30 trillion versus the budget provision of N5.06 trillion.
According to the report, the figures indicated that 67.2 per cent of the federal government’s retained revenue of N18.63 trillion was spent on debt service in the first nine months of 2025. When the sinking fund is included, debt-related payments consumed about 67.8 per cent of revenue.
It was also observed that aggregate federal government revenue underperformed the budget by N12.03 trillion or 39.24 per cent, as actual revenue of N18.63 trillion fell short of the N30.67 trillion projected for the first three quarters.
In the third quarter alone, the government generated N7.70 trillion versus the quarterly target of N10.22 trillion as a result of persistent oil revenue shortfalls, despite stronger non-oil collections.
The debt burden also crowded out capital spending, as total capital expenditure was N3.10 trillion in the first nine months compared with the N17.58 trillion budgeted for the period, indicating that actual debt-related payments were more than four times capital expenditure.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange recorded a loss of 1.13 per cent on Thursday, June 4, shrinking the market capitalisation by N30.03 billion to N2.630 trillion from N2.660 trillion on Wednesday.
Similarly, this brought down the NASD Unlisted Security Index (NSI) by 50.19 points to 4,396.08 points from the 4,446.27 points recorded a day earlier.
The loss was influenced by the overpowering of the bulls by the bears, after the bourse closed with two price gainers and three price losers, led by FrieslandCampina Wamco Nigeria Plc, which slumped by N20.03 to sell at N190.38 per unit compared with midweek’s N210.41 per unit. Food Concepts Plc declined by 25 Kobo to trade at N2.50 per share versus the previous day’s N3.00 per share, and Acorn Petroleum Plc crumbled by 2 Kobo to end at N1.32 per unit, in contrast to the preceding session’s N1.34 per unit.
For the gainers, Central Securities Clearing System (CSCS) Plc added N2.93 to close at N78.34 per share compared with the previous price of N75.41 per share, and Afriland Properties Plc gained 80 Kobo to settle at N16.80 per unit versus N16.00 per unit.
There was a slip in the volume of transactions yesterday by 46.8 per cent to 280,714 units from 527,221 units, as the value of trades dropped 66.5 per cent to N21.8 million from the preceding session’s N64.2 million, and the number of deals fell by 8.7 per cent to 42 deals from 46 deals.
Great Nigeria Insurance (GNI) Plc ended the session as the most traded stock by value on a year-to-date basis with 3.4 billion units worth N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and CSCS Plc with 64.7 million units traded for N4.4 billion.
GNI Plc also finished the day as the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Infracredit Plc with 2.3 billion units exchanged for N6.5 billion, and Resourcery Plc with 1.1 billion units transacted for N415.7 million.
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