Economy
Nigeria’s Inflation to Hit 12% in 2019—Fitch
By Dipo Olowookere
Global rating agency, Fitch Ratings, has said the path to full economic stability and recovery for the Nigerian economy is very rough.
In a statement affirming the nation’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’, Fitch said weak party discipline in parliament and frequent disagreements between the presidency and legislature point to a continued high risk of delays to parliamentary approval of key legislation.
The rating firm said it expects policy continuity with the implementation of only piecemeal reforms, resulting in slow progress on tackling long-standing impediments to growth and weaknesses in macroeconomic management.
While it projected that inflation will average close to 12 percent in 2019-2020, well above the projected current ‘B’ median of 4.8 percent, propped up by cost-push factors, the Gross Domestic Product (GDP) growth is anticipated to average 2.2 percent in 2019-2020, below its previous 10-year average of 4.2 percent and the current ‘B’ median of 3.4 percent.
Business Post reports that in April 2019, according to the National Bureau of Statistics (NBS), the country’s inflation rose to 11.37 percent year-on-year from 11.25 percent year-on-year in March 2019.
Fitch noted that high unemployment and inflation will constrain private consumption while investment is held back by tight credit supply, a weak business climate and regulatory uncertainty in the oil sector.
It said a large infrastructure deficit, which is illustrated by acute power supply shortages and security challenges, also dampen the medium-term growth outlook.
The renowned rating agency disclosed that 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 (GG) 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,” it said.
Continuing, it stated that Nigeria’s fiscal performance mostly remains a function of fluctuations in oil revenues, noting that the implicit subsidy of petrol prices (around 0.6% of GDP in 2018), the gradual clearance of joint-venture (JV) cash call arrears (outstanding stock of 1% 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.
“Fitch estimates that the GG deficit narrowed to 3.6% of GDP (federal government, FGN: 2.3% excluding transfers to state and local governments, SLGs) in 2018 from 4.5% in 2017 (FGN: 3.2%), mostly reflecting the recovery in oil prices.
“Fitch forecasts the GG deficit to widen to 3.8% of GDP (FGN: 2.6%) in 2019 and further to 4.6% in 2020 (FGN: 3%) as the rise in oil production with the coming on stream of the Egina oilfield will be offset by the decline in oil prices under our baseline. Public finances are vulnerable to disruptions to production caused by recurrent acts of vandalism or other force majeure affecting Nigeria’s aging oil infrastructure. A $10 change per barrel in the Brent oil price against our assumptions would, all else equal, impact the GG balance by around 0.6% of GDP.
“Nigeria’s particularly low non-oil fiscal revenues averaging only 3.7% of GDP over 2016-2018 are a key rating weakness, reducing the fiscal space and resulting in a high fiscal Brent breakeven price of USD129 per barrel in 2019 and USD149 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 SLGs, 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.
“Interest payments consumed 27% of GG revenues (FGN: 53%) in 2018 based on Fitch’s estimates, double the current ‘B’ median of 13% and will rise to 30% of revenues (FGN: 65.6%) in 2020, highlighting the risks to debt sustainability arising from low fiscal receipts. The authorities aim to contain the rise in the interest cost by substituting external concessional and commercial borrowing to onerous domestic financing. They also plan to reduce debt through partial privatisations of oil JV assets, which we do not expect to materially reduce their oil revenues.
“GG debt will rise from 25% of GDP (FGN: 20%, including central bank overdrafts) in 2018 to 28.2% of GDP (FGN: 22.4%) in 2020, still well below the projected current ‘B’ median of 56%, under Fitch’s forecasts. Around 71% of GG debt was naira-denominated at end-2018, limiting refinancing and exchange rate risks but high direct and indirect foreign holdings of local-currency debt expose Nigeria to shifts in investor sentiment and global funding conditions. The debt of the Asset Management Corporation of Nigeria (AMCON) of 3.2% of GDP at end-2018 constitutes a contingent liability for the sovereign, and could rise in the context of high non-performing loans in the banking sector of 11.7% of total bank loans and an elevated proportion of restructured loans,” a statement from the agency said.
By Aduragbemi Omiyale
The Debt Management Office (DMO) on Monday allotted bonds worth N929.3 billion to investors from the N1.7 trillion bids it received from subscribers.
The exercise, which took place on Monday, July 20, 2026, was oversubscribed by market participants, reflecting the confidence investors have in the government’s ability to redeem the debt instrument on maturity.
On offer for sale for the July auction was N1.2 trillion worth of the FGN bonds, but the DMO allotted below this, despite receiving bids above the offer.
The papers were offered in 10-year, 15-year, and 20-year tenors, at N400 billion each.
For the decade-old note, investors staked N444.47 billion, but the debt office sold N245.73 billion at an 18.34 per cent coupon rate. For the one and a half-decade-old paper, bids valued at N518.00 billion were received by the DMO, with a non-competitive bid of N50.00 billion, with N302.13 billion allotted to investors at 18.40 per cent, and for the two-decade paper, the DMO got competitive bids of N665.19 billion and N381.46 billion was sold to bondholders at 18.35 per cent.
By Adedapo Adesanya
The Governor of the Central Bank of Nigeria (CBN), Mr Yemi Cardoso, disclosed that Nigeria’s external reserves had risen to $52.5 billion, enough to finance about nine months of imports.
He disclosed this on Tuesday at the end of the 306th meeting of the Monetary Policy Committee (MPC) held in Abuja, where the Monetary Policy Committee (MPC) retained the benchmark interest rate at 26.50 per cent as well as the standing facilities corridor at +50/-450 basis points around the MPR.
Similarly, the Cash Reserve Requirement (CRR) was maintained at 45 per cent for Deposit Money Banks, 16 per cent for Merchant Banks, and 75 per cent for non-Treasury Single Account (TSA) public sector deposits.
Speaking on FX developments, the central banker said at the $52 billion level, the country’s external reserves were significantly above the internationally recommended threshold of three months of import cover.
On the Naira exchange rate, Mr Cardoso said the foreign exchange market had deepened and was now operating on a transparent willing-buyer, willing-seller basis.
He said the apex bank remained committed to maintaining a liquid and functional foreign exchange market, adding that daily market turnover sometimes exceeded $1 billion.
According to him, the long-term stability of the naira would depend on key economic fundamentals, including increased oil exports, foreign direct investment, and improved domestic productivity to reduce dependence on imports.
He also added that the MPC welcomed the federal government’s renewed commitment to stronger policy coordination, particularly collaboration between fiscal and monetary authorities, which he said had helped reduce the impact of the Middle East crisis on the Nigerian economy.
Mr Cardoso said members of the committee also commended efforts to improve crude oil production and urged relevant agencies to intensify reforms in other sectors, including solid minerals, to boost government revenue.
On the regulatory forbearance granted to banks during the COVID-19 period, he reiterated that this had been discontinued because it had served its purpose.
According to him, the policy had “outlived its time” and was no longer necessary in assessing the health of the banking sector.
“Forbearance, we felt, had outlived its time. Many of you will recall this is something that came as a result of COVID. And now we are in 2026; we did not see the reason why that should continue to form part of the analysis of the banking system,” he said.
Mr Cardoso explained that banks had begun recalibrating their portfolios following the end of the policy, leading to a temporary reduction in outstanding risk assets.
He, however, assured that the development was part of a transition towards a stronger and more sustainable credit environment.
“It reflects a transition to a more sustainable and better quality credit environment, which is what we all want. We don’t want unanticipated shocks that come in a boom-and-bust fashion,” he said.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange extended its recent positive run by 1.17 per cent on Tuesday, July 21, triggered by appreciation seen in four bellwethers.
Leading the pack was FrieslandCampina Wamco Nigeria Plc, which added N12.00 to its value to close at N153.15 per share compared with the previous day’s N141.15 per share. NASD Plc appreciated by N1.90 to N36.00 per unit from N34.10 per unit, Food Concepts Plc improved by 23 Kobo to N2.48 per share from N2.25 per share, and Afriland Properties Plc grew by a marginal 1 Kobo to N15.01 per unit from N15.00 per unit.
As a result, the market capitalisation of the bourse increased by N30.40 billion to N2.637 trillion from Monday’s N2.606 trillion, and the NASD Security Index (NSI) gained 50.70 points to finish at 4,393.97 points, in contrast to the 4,343.27 points it ended a day earlier.
The unlisted securities exchange recorded a price loser yesterday, and it was Geo-Fluids Plc, which shed 1 Kobo to settle at N2.30 per share versus N2.31 per share.
During the trading day, the volume of securities traded by market participants on Tuesday dropped 99.4 per cent to 322,147 units from the previous day’s 52.6 million units, the value of securities dipped by 89.8 per cent to N19.4 million from the preceding session’s N191.2 million, and the number of deals contracted by 3.6 per cent to 27 deals from 28 deals.
Great Nigeria Insurance (GNI) Plc ended the day as the most traded stock by value on a year-to-date basis, with 3.4 billion units traded for N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units transacted for N6.5 billion, and Central Securities Clearing System (CSCS) Plc with 75.4 million units exchanged for N5.3 billion.
GNI Plc also closed the day as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infracredit Plc with 2.3 billion units valued at N6.5 billion, and Resourcery Plc with 1.1 billion units sold for N415.7 million.
