Nigeria’s debt to revenue at 294% high, Fitch says
FITCH SAYS NI GERIAN GOVERN MENT debt stands at 294 percent of revenue, which according to the foremost rating agency is relatively high.
Jan Friederich, a senior director at Fitch Ratings disclosed this in an interview with Bonds & Loans last week, saying that counting on the federal government alone, revenue the ratio would be even higher.
He noted that though the level of debt to GDP is low (24%), the pace of debt accumulation, supported by a greater focus on improving infrastructure, is an issue Fitch is monitoring.
“Nigeria stands out for its very low level of government revenues, which we estimate at around 6 percent of GDP this year. This means that relative to revenue, the levels of interest expenditure and of debt are very high although they are only moderate relative to GDP.
“We are still monitoring the evolution of the exchange rate regime quite closely. The current regime, combined with higher oil prices and oil production, has increased FX availability, but the multiple rate system may still be weighing on growth and likely complicates monetary policy making,” he said.
He indicated that the main risk to inflation is that the recent sharp fall in inflation will stop early and that monetary policy signaling is not clear and so it is uncertain whether conditions are right for inflation to return to the Central Bank of Nigeria’s target range.
Friederich highlighted that among the high-impact but lowprobability risks are disruptions to oil production or disorderly run of next year’s election.
He however noted that Nigeria’s economy recorded better than expected private sector credit growth in the third quarter of this year, with more borrowers funnelling the proceeds towards CAPEX-related activities – despite next year’s federal election looming.
“Nigeria’s economy is recovering gradually and we expect growth of 2.4% in 2018 rising to 3.3% in 2020. Clearly a positive force is the rising oil price this year and the improvement in the availability of foreign exchange. Security challenges to oil production remain a risk, and uncertainty about the election may weigh on activity in the near term,” he stated.
He said oil prices are key for Nigeria’s current account balance and that the current upswing in oil prices could help bring about a current account surplus of 2.8 percent of GDP in 2018, although the continued easing of FX constraints and recovering economic growth could reduce the surplus in the following two years by allowing for higher levels of imports.
“The increased availability of foreign exchange and the government’s greater investment in infrastructure are among the factors supporting growth. From a longerterm perspective, Nigeria has the potential for a strong private sector supported by a large population and strong demographic growth, but the level of informality is acting as a brake on growth.”
He pointed out that this year promises to be a good vintage for global GDP growth, with ongoing tightening of labour markets across the largest advanced economies underpinning consumer spending, adding that unemployment in the US would likely hit a 66-year low, helped by pro-cyclical fiscal stimulus.
“But, it is also likely to be too good to last. Global quantitative tightening will start in earnest next year and an escalation of trade tensions has the potential to knock off 0.4 percentage points of world GDP growth,” he warned.
We are still monitoring the evolution of the exchange rate regime quite closely