Inflation overview – Headline inflation decreased from 17.8% year-on-year (y-o-y) in February to 17.3% y-o-y in March. The central bank’s Monetary Policy Committee (MPC) held rates constant for the fourth consecutive meeting. Finance minister Kemi Odeosun has publicly called for lower interest rates in order to stimulate the economy, though the Central Bank of Nigeria (CBN) has refused this. Growth summary – Nigeria will return to positive real GDP growth in 2017 following and a contraction in 2016.
The sluggish growth last year is attributed to the inadequate supply of foreign currency, foreign exchange restrictions targeted at a list of 41 imports, cuts to oil production due to security challenges in the Niger Delta and the impact of lower oil prices on employment in the hydrocarbon sector. Economic policy – The federal government launched its Economic Recovery and Growth Plan (2017-2020) during April.
The scheme will act as a roadmap for security improvements, the war against corruption and economic revitalisation, and includes sectoral plans for agriculture, energy, transport, industrialisation and social investments. An economic growth goal of 7% has been set for 2020.
S&P Global Ratings affirmed Nigeria’s long-term foreign sovereign credit ratings at “B” in March 2017, with a stable outlook. Economic growth is expected to improve amid increasing oil production. The country’s low level of economic wealth, real GDP per capita below its peers and the highly centralised political environment has constrained Nigeria’s rating to a certain extent. Low general government debt and modest fiscal deficits supported the ratings. S&P may lower the sovereign’s ratings if the fiscal and external accounts deteriorate further or if the financial sector undergoes greater stress than expected. The sovereign’s ratings may be raised if economic growth increases more than expected and if forex controls on current and capital account transactions are eased, which enhances monetary flexibility.
Fitch Ratings revised the outlook on Nigeria’s ratings from stable to negative in January 2017, while affirming its “B+” rating. The changed outlook came amid concerns that a lack of foreign exchange will hamper the economy. Currently the spread between the official rate and the parallel market rates for forex is large, and until the Central Bank of Nigeria (CBN) can bring this spread down and simultaneously establish the credibility of the interbank forex market, forex will remain severely restricted.
Moody’s Investors Services affirmed its “B1” long-term issuer rating of Nigeria in December 2016, with a stable outlook. The key drivers behind this affirmation was that the country’s medium term growth prospects remained robust despite the challenging environment currently being experienced, and that the government’s balance sheet remains strong in comparison to its peers and resilient to the contractionary environment. Positive pressure on Nigeria’s rating could occur via the successful implementation of structural reforms by the Buhari administration, a strong improvement in institutional strength (with respect to corruption and government effectiveness and the rule of law), and through the rebuilding of large-enough financial buffers to shelter the economy against an oil price and production volatility period. The “B1” issuer rating could be revised downwards in the event of a larger-than-expected deterioration in the government’s balance sheet or lower-than-expected growth in the medium term.