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Fitch Returns Nigeria’s Outlook to Stable, Forecasts 2% GDP Growth



Fitch Ratings

**Says Inflation to Remain at Double Digits through 2019

**Debt to Hits 292% of Revenue

**Buhari Expected to Continue Economic Programme if Re-elected

By Dipo Olowookere

The outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) has been reviewed upward to stable nearly six months after it was dropped to negative by Fitch Ratings.

In a statement dated November 2, 2018, the global rating agency said it also affirmed its rating on Nigeria at ‘B+’.

According to Fitch, the revision of the outlook on Nigeria’s Long-Term IDRs reflects the ongoing economic recovery and decreasing external vulnerabilities, both supported by increased oil production and higher global oil prices.

It noted that despite setbacks, the Nigerian economy is continuing its slow recovery from the recession that ended in early 2017.

Fitch pointed out that non-oil growth has been supported by an increase in the supply of foreign exchange and will receive an additional boost as the government begins its delayed implementation of the 2018 capital budget.

“Political uncertainty ahead of the general election scheduled for February 2019 may lead to some weakening in growth, but we expect any disruption to be short-lived,” the statement obtained by Business Post said.

It added that the contribution of the oil sector has been positive in the first half of 2018 as oil production, including condensates, has averaged just below 2.1 million barrels per day (mbpd), compared with 1.9 mbpd in 2017.

Fitch said it expects average production of crude oil in Nigeria to remain around 2.1 mbpd through 2018 and 1H19.

Fitch is forecasting a GDP growth of 2 percent overall in 2018, increasing to 2.5 percent in 2019 and 3.3 percent in 2020, and the agency expects that Nigeria’s medium-term growth will average around 4 percent.

It noted that oil production will increase as new exploration and oil infrastructure projects begin to come online, but emphasised that Nigeria will struggle to raise production to the levels envisaged in the 2019-2021 Medium Term Expenditure Framework (MTEF).

Fitch said high inflation has been a rating weakness, but CPI growth slowed to 11.3 percent year-on-year in September 2018, down from a recent peak of 18.7 percent in January 2017.

Inflation fell rapidly in 1Q18, but disinflation has slowed since, as base effects fade and conflicts between herders and farmers affect food supplies.

Fitch said it expects that annual average inflation will fall, but remain in the double digits through 2019.

“Despite falling inflation, Fitch expects that the Central Bank of Nigeria (CBN) will move towards tighter monetary policy to support FX rate stability,” the firm said.

The CBN has kept the monetary policy rate at 14 percent since May 2016, but has conducted monetary policy through its sales of Open Market Operation bills and by managing the reserve ratio.

Foreign currency availability has improved although Fitch believes that it remains a constraint on economic growth. The CBN continues to operate an FX regime with multiple windows and exchange rates, which will not change before the general elections. However, the wholesale interbank FX rate has depreciated, bringing it closer to the rate at the Investors and Exporters window.

Nigeria has increased its stock of international reserves to $44.6 billion (7.2 months of current external payments) as of September 2018, from $37.9 billion at end-2017.

The accumulation of reserves has been a function of both an increase in oil export receipts and an increase in inflow of foreign investments.

The rating agency said Nigeria’s external flows are exposed to global risk sentiments as well as to investor’s views on the country’s political and fiscal developments. However, the build-up of reserves provides a substantial external buffer.

“Nigeria’s ‘B+’ IDRs also reflect the country’s position as Africa’s largest economy and its well-developed domestic debt markets, balanced against low levels of domestic revenue mobilisation and of GDP per capita, a high level of hydrocarbon dependence, and low rankings on governance and business environment indicators.

“Nigeria continues to run persistent fiscal deficits at both the central and general government levels. Fitch forecasts a general government deficit of 4.3 percent of GDP in 2018, approximately the same as 2017.

“The government’s 2019-2022 Medium Term Expenditure Framework envisages a decrease in expenditure following three straight years of increasing capital expenditure. Lower expenditure, as a percentage of GDP, will help the general government fiscal deficit to narrow to 4 percent of GDP in 2019, but the government will continue to experience difficulty in raising non-oil domestic revenue.

“Oil revenue has increased since hitting bottom in 2016, but volatile production levels and inefficiencies within the petroleum sector have limited the transmission of higher oil prices to higher government revenue,” the statement said.

It added that Nigeria’s general government debt will rise to 292 percent of revenue, well above the historical ‘B’ median of 205 percent of revenue, reflecting the accumulation of new debt and the lack of progress on raising government revenue.

At 20 percent of general government revenue, interest payments are already more than twice the ‘B’ median. Federal government interest expenditure to federal government revenue stands much higher at just below 60 percent, the company stated.

“Fitch forecasts Nigeria’s current account (CA) surplus to widen to 3.6 percent of GDP in 2018 as oil export receipts have grown thanks to high oil prices. The CA surplus will narrow in subsequent years as import growth increases following several years of import compression related to tight foreign exchange supply. Nigeria is a net external creditor equivalent to 12 percent of GDP in 2018.

Fitch considers that the easing of foreign-currency liquidity has reduced risks regarding Nigerian banks’ ability to meet dollar liabilities and external debt repayments. However, economic headwinds have continued to affect asset quality.

“Average industry NPLs (according to CBN data) increased to 15 percent at end-2017, reflecting the lag affect from 2015. NPLs are concentrated in the oil and gas sector. The ongoing economic recovery, higher oil prices and widespread loan restructuring is likely to moderately help asset quality, but high NPLs will weigh on private sector credit provision.

“Credit to the private sector returned to modest positive growth in 2018 after tight domestic liquidity and crowding out from government borrowing led to a contraction of 5 percent through November 2017,” the firm said.

It was stressed that the outcome of the upcoming general elections remains uncertain. President Buhari will face a strong challenge from former Vice President Atiku Abubakar, who won the October 2018 primary to be the People’s Democratic Party candidate. Abubakar has made limited statements regarding his economic policy platform, but has criticised the current FX regime and has also signalled his support for devolving more control over public finances to the state governments.

“If Buhari is re-elected, we expect his government to continue implementing the economic programme outlined in the Economic Recovery and Growth Plan released in March 2017.

“Fitch does not expect widespread disruption or instability around the election. However, a flare-up of violence in the Niger Delta around the elections presents downside risk to the fiscal, external and GDP growth forecasts,” the rating agency stated.

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via


Subsidy Removal: CNG at N130 Per Litre Cheaper Than Petrol—IPMAN




By Adedapo Adesanya

The Independent Petroleum Manufacturers Association of Nigeria (IPMAN) has advised Nigerians to begin to look into the direction of Compressed Natural Gas (CNG) as an alternative energy source to cushion the effect of subsidy removal.

The National President of IPMAN, Mr Chinedu Okorokwo, made this known in an interview with the News Agency of Nigeria (NAN) in Abuja on Wednesday, as the federal government continues its dialogue with the organised labour over the hike in the price of premium motor spirit (PMS), otherwise known as petrol.

On May 29, 2023, during his inaugural speech, President Bola Tinubu said the payment of subsidy for fuel had ended because there was no provision for it in the 2023 budget beyond June 30.

His announcement triggered the hoarding of fuel by marketers, and when the Nigerian National Petroleum Company (NNPC) Limited increased the price of the product across its retail outlets, prices of food, transportation and services went up, forcing the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) to threaten a nationwide strike, which was supposed to start today but was stopped by the National Industrial Court.

At a meeting on Monday night between the government and the labour unions, it was agreed that the adoption of CNG as an alternative fuel would be the best option, and it was agreed that the CNG conversion programme earlier planned in 2021 should be revived.

CNG, which is a gas mainly composed of methane and produces less emission, is the cleanest burning fuel operating today with less vehicle maintenance and longer engine life.

In the interview with NAN, Mr Okoronkwo said bringing CNG, which was cheaper than even firewood, as an alternative energy, would create relief for the government and its citizens.

“We have also discovered that bringing an alternative that is cheaper than even firewood which is CNG, will not only create relief for the government and its citizens but it is environmentally friendly.

“The CNG is abundantly available in Nigeria than anywhere in Africa.

“In the Niger Delta region, you see billions of tonnes of gas flare being wasted daily, these are huge amounts that should be accruing to our GDP, but we are wasting it because there is no market for it.

“So, we are asking the government to create the market. How do you create the market?

“What Egypt and India did was to give soft loans to be paid back within stipulated periods; from there, you can get vehicles to use gas instead of fuel,” he said.

“There’s a franchise for the bottling of CNG so that an average woman in the kitchen can use it,’’ he added, noting that the introduction of CNG would cushion the effect occasioned by the high price of fuel currently as a litre of CNG would not cost more than N130.

He advised that repairing the local refineries as well would reduce the impact of the removal as it would eliminate the cost of importation and exportation.

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Nigeria Upgrades Tax-to-GDP Ratio to 10.86% From 6%



tax-to-GDP ratio

By Modupe Gbadeyanka

The National Bureau of Statistics (NBS) has disclosed that Nigeria’s tax to Gross Domestic Product (GDP) ratio has been upwardly reviewed to 10.86 per cent from the 6 per cent earlier reported to reflect better data sources and improved estimation using the Organisation for Economic Co-operation and Development (OECD) manual.

The OECD manual is an improvement over the System of National Accounts (SNA 2008) classification of taxes.

Although the System of National Accounts conceptual framework and its definitions of the various sectors of the economy are reflected in the OECD’s classification of taxes, the OECD classifications provide the maximum disaggregation of statistical data on what is generally regarded as taxes by tax administrations.

In a disclosure, the statistics office said the country’s total tax revenue compared with its GDP was at that level in 2021, higher than 8.40 per cent in 2020, which was impacted by the COVID-19 pandemic.

In the previous year, the ratio was 10.20 per cent, marginally lower than the 10.36 per cent recorded in 2018 but higher than the 9.02 per cent in 2017.

The NBS said the revised computation considered more comprehensive coverage of data at the federal, state, and local government levels and revenue items not previously included in the computations, particularly relevant revenue collected by other government agencies.

The review of the tax-to-GDP ratio was initiated by the Federal Inland Revenue Service, which collaborated with the Federal Ministry of Finance and the NBS for better measurement of the ratio.

The data used were sourced from the Office of the Accountant General of the Federation (OAGF), FIRS, NBS, the Nigeria Customs Service (NCS), the Joint Tax Board (JTB), and other relevant agencies of government that collect revenue.

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VFD Group Intends to Join Nigerian Exchange



VFD Group

By Adedapo Adesanya

VFD Group Plc has announced its intention to list its shares on the Nigerian Exchange Group (NGX) to allow it to gain access to public equity markets, increase its visibility, and strengthen its financial position.

VFD Group Plc is a leading proprietary investment company with a proven track record of generating attractive returns for its investors through a variety of investment strategies.

The company has a diverse portfolio of investments in various sectors, including banking, technology, media, energy, and real estate. The group has been listed on the NASD OTC Securities Exchange since 2020.

Speaking on this big step, Mr Nonso Okpala, Group Managing Director of VFD Group, stated, “We are excited to take this next step in the evolution of our company.”

“Listing on a major stock exchange will give us access to a larger pool of investors, enhance our profile, and provide superior returns to our investors,” he added.

However, its listing on the NGX is subject to regulatory approvals and market conditions.

VFD Group noted that it would provide additional updates as the listing process progresses.

At the close of business on Tuesday, the securities of the organisation closed on the NASD OTC exchange at N244.88 per unit, the same rate they finished in the preceding trading session.

Business Post reports that the NASD was created to provide an avenue for public companies to transition smoothly into the country’s main stock exchange.

However, it has witnessed the movement of firms from the NGX to the NASD, especially due to the very strict regulatory requirements of the former.

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