One of the world’s leading credit rating agencies, Moody’s, has said that though Nigeria’s capital markets remain a reliable and captive source of liquidity and funding for the government, the oil and gas sector would play a significant role in getting Nigeria out of recession this year.
The agency predicts that the country, going by the federal government’s fiscal policies and anti-corruption fight, will get the economy right.
It stated further that two-thirds of 2017 real growth would come from the oil sector rebound alone, with a strong base effect expected in the second and third quarters.
“Nigeria’s large hydrocarbons reserves remain a key credit support: it has an estimated 37 billion barrels of oil (about 28% of total African reserves) and nearly 34 billion of oil-equivalent in gas. Oil and gas exports tend to account for over 90 percent of goods exports and a significant share of fiscal revenue (60-70% prior to the current oil shock).
‘‘Our current oil price forecast are $45 per barrel in 2017 and $50 in 2018, compared to prices above $100 on average between 2010 and 2014,” Moody’s said.
Similarly, experts have expressed similar views about the economy in 2017, and have noted that though the recovery will be slow, if government increases productivity and implements the budget, Nigerians will have reasons to smile again.
Moody’s said that the country’s economy and her dollar earnings are expected to improve in the New Year.
The rating firm’s Vice President and Lead Analyst for Nigeria, Lucie Villa, said that Nigeria’s economy would bounce back to 2.5 percent in 2017 from its 1.5 percent contraction in 2016.
Minister of Finance Kemi Adeosun had in July last year disclosed that Nigeria was “technically” in recession and that militant activities in the Niger Delta had affected government revenues.
The minister had remained optimistic about the chances of an economic improvement, when she declared, “We are going to come out of it and it would be a very short one because the policies that we have, would ensure that we don’t go below where we need to go.”
The minister’s positive outlook was also echoed by the Villa who said, “We expect Nigeria’s economic growth to bounce back to 2.5 percent in 2017, supported by an ongoing recovery in oil production. The government’s balance sheet is strong, with debt at around 16.6 percent of gross domestic product in 2016.’’
Also, despite its interest burden rising to 19.8 percent of revenue, Nigeria’s capital markets remain a reliable and captive source of liquidity and funding for the government.
Villa’s optimistic outlook largely agreed with the projections in Moody’s latest report which was released late last year.
In the report, which rates Nigeria’s economy B1 (stable), the agency noted that the “stable outlook” was supported by the strength of the country’s balance sheet. In 2017 and 2018, the credit rating agency said it expected Nigeria’s balance of payments to move back into surplus.
Moody’s, however, said Nigeria’s weak institutional framework, especially in terms of “the rule of law, government effectiveness and control of corruption,” would have a significant impact on its economic growth and fiscal strength, and thereby constrain the B1 rating.
“The country is still exposed to political risks arising from both the conflict with Boko Haram and recurrent attacks on oil infrastructures in the Niger Delta,” Villa added.
Moody’s also predicted that the federal government’s deficit would remain around 2 percent in 2017 and 2018.