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 () 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 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 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 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 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.

“ 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 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.

https://businesspost.ng/2019/06/15/nigerias-inflation-to-hit-12-in-2019-fitch/

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dipoolowoo:
By Dipo Olowookere
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.

Congrats CanadaOrBust 4 this your glorious FTC!

My question is, if Naija inflation is 11% and US is 1.9%, what keeps the exchange rate steady at $1=N360?
And why would anyone store their money in naira??

Can someone also explain why a piece of paper that costs 10 cents to print in US is worth $100 in Naija?

CanadaOrBust:


My question is, if Naija inflation is 11% and US is 3%, what keeps the exchange rate steady at $1=N360?

CBN inject money to into Forex market to protect currency from devaluation. That money comes from foreign reserves Nigeria earns through exports from oil. Recently CBN injected 210 million dollars to defend naira.

Blue3k:


CBN inject money to into Forex market to protect currency from devaluation. That money comes from foreign reserves Nigeria earns through exports from oil. Recently CBN injected 210 million dollars to defend naira.

(BTW US inflation is at 1.9% according to Google)
We are talking a difference of 9%. That’s 9% of trillions of dollars. How can $210 compensate for that?
Also how come the black market also stays steady?!

CanadaOrBust:


(BTW US inflation is at 1.9% according to Google)
We are talking a difference of 9%. That’s 9% of trillions of dollars. How can $210 compensate for that?
Also how come the black market also stays steady?!

It's about supplying enough forex to supplement demand. $210 million doesn't cover it. It was 36 billion last year. Heres an article about it.

The black market stays steady because of supply and demand. Its the same reason other currency dont values dont radically change day to day.

It is very evident.

But they want to be president by all means even if it affects the well-being of Nigerians.

Blue3k:


It's about supplying enough forex to supplement demand. $210 million doesn't cover it. It was 36 billion last year. Heres an article about it.

The black market stays steady because of supply and demand. Its the same reason other currency dont values dont radically change day to day.

U seem to know your stuff.
Thanks 4 bringing that site to my awareness. It is a good site to know.
Question still remains though: Since the naira loses so much value each year compared the dollar, why would anyone store money in naira

CanadaOrBust:


U seem to know your stuff.
Thanks 4 bringing that site to my awareness. It is a good site to know.
Question still remains though: Since the naira loses so much value each year compared the dollar, why would anyone store money in naira

Thanks I try. I dont know answer to last question. I always assumed the banks offer high interest or they save in different currency.

Buhari why

Imagine leaving 1million naira in the bank and having it lose 12% in purchasing power every single year. At this point I would rather buy bitcoin and take my chances.

CanadaOrBust:



My question is, if Naija inflation is 11% and US is 1.9%, what keeps the exchange rate steady at $1=N360?

Nigeria's exchange rate is not market determined.

rentAcock:
Imagine leaving 1million naira in the bank and having it lose 12% in purchasing power every single year. At this point I would rather buy bitcoin and take my chances.

What is the difference between current 11.37% and projected 12%?

The same rate was over 18% previously and you didn't die.

Abeg CAN SOMEONE EXPLAIN THIS EPISTLE FOR ME? Op Which kind wahala be this?

Blue3k:


Thanks I try. I dont know answer to last question. I always assumed the banks offer high interest or they save in different currency.

IMO there is something quite mysterious about monetary system. Even though CBN was propping up the naira there was still this huge and constantly widening disparity between black market and official rates. Then all of a sudden it disappeared and has stayed so ever since. Since 2017 it has stayed at about 360=1 without any commensurate increase in money from CBN.

Vizzy4u:
Abeg CAN SOMEONE EXPLAIN THIS EPISTLE FOR ME? Op Which kind wahala be this?

This is not for everyone. Don’t overheat your brain. IMO there is something unexplainable about the whole monetary system. Example, when did the world have a meeting and voted that US dollar should be the standard. Even our erudite OP has already used the term “I don’t know”

In plain English...we are moving to the Next Level of suffering .

Watch children of hate who don’t even understand anything being said come here to spew trash about Buhari. As if the interest rate was at 3% before Buhari came in.

rentAcock:
Imagine leaving 1million naira in the bank and having it lose 12% in purchasing power every single year. At this point I would rather buy bitcoin and take my chances.

People don’t understand the whole bitcoin stuff. I know I don’t. What exactly backs bitcoin? What commodity or governmental structure? Too hocus pocus 4 me.

rentAcock:
Imagine leaving 1million naira in the bank and having it lose 12% in purchasing power every single year. At this point I would rather buy bitcoin and take my chances.

Yet it stays same EVERY YEAR as USD that’s only losing 1.9%. Mysterious.

I thought Joe / corruption was nig's bane until I WASTED my vote on the redundant recessionist/ SELF-SERVING coupist/ in 2015!

5 years on, the shithole ain't any better!......


nig is a failed experiment..


only a FACTORY RESET CAN SALVAGE IT!

Truth234:


What is the difference between current 11.37% and projected 12%?

The same rate was over 18% previously and you didn't die.

The difference is 0.63%. And 0.63% of a trillion $ is
$6300000000!!!!

And some useless people are saying there’s no money in circulation.
They probably don’t know what inflation means

jomoh:
Watch children of hate who don’t even understand anything being said come here to spew trash about Buhari. As if the interest rate was at 3% before Buhari came in.

Guilty conscience is affecting you... its was 7% in 2014(single digit)

Buhari is fighting corruption

CanadaOrBust:


This is not for everyone. Don’t overheat your brain. IMO there is something unexplainable about the whole monetary system. Example, when did the world have a meeting and voted that US dollar should be the standard. Even our erudite OP has already used the term “I don’t know”

The dollar is so popular because it's the world's reserve currency . World leaders gave it that status at the 1944 Bretton Woods Agreement . i read from Robert Kiyosaki's book "conspiracy of the rich" that that's the only reason the US has remain great today, they can simply print paper and exchange it with anything in the world. and that recently China has been trying to get out of the Agreement.

Since 2015 everything about this illiterate has been NEGATIVE. WHY?

JoffreyBeroth:

First Btc transaction was the fact that 3btc was used to purchase a pizza about 9years ago. Now 3btc is worth over $20,000. Dig it

U didn’t answer the question. What or who backs bitcoin.
For example, see who backs dollar

They left Nigeria and still monitoring our economy. Monitoring spirit. They predicted that Nigeria economy was not out of recession when it was out of recession.