BEVERLY HILLS, December 14, (THEWILL) – Moody’s Investors Service has stated that Nigeria’s economic growth will be severely hampered by the volatility of the oil price in the international market.
In an annual report on the country, Moody said Nigeria’s credit profile reflects the country’s increasing exposure to fiscal and external shocks because of its weak government finances, which are constrained by an extremely narrow revenue base that hinders fiscal consolidation.
It said additional credit challenges stemmed from the political risks around the conflict with Boko Haram, potential attacks on oil infrastructure in the Niger Delta and growing income inequality, adding that that the COVID-19 pandemic and the associated global downturn severely hurt economies in Africa, with the regional economy contracting for the first time in decades.
It predicted that Nigeria’s economy would contract by three per cent in 2020, compared with growth of 2.2 per cent in 2019, because of the severity of the strain caused by the pandemic and the accompanying oil price shock.
The rating agency explained that given containment and prevention measures that constrained the functioning of important economic sectors such as trade, coupled with global spillovers (particularly the sharp drop in international oil prices) that significantly weakened both domestic and external demand, the shock to the economy was most severe in the second quarter of 2020 when it contracted by 6.1 per cent.
It noted that despite an improvement in the third quarter of the year, when the economy contracted by 3.6 per cent in 2020, “overall contraction will represent Nigeria’s worst recession in the last 25 years.” Moody’s added: “The shock is likely to continue to restrict the economy over the next few years. The economy took three years to record growth above two per cent following the 2016 oil price shock, still below population growth.
“The current shocks will amplify Nigeria’s existing credit vulnerabilities. In the near term, a significant drop in oil revenue will reduce the country’s already extremely low tax base, undermining fiscal strength and reducing the government’s capacity to support the economy.
“In addition, pressure on the fragile balance of payments could intensify, threatening external and macroeconomic stability. In the longer term, the pandemic’s impact on growth, particularly in the large informal sector, is still uncertain and could weaken economic strength,” it said.
It anticipated that Nigeria’s real Gross Domestic Product (GDP) growth would reach 2.1 per cent in 2021, supported by a rebound in international oil prices, predicting $45 per barrel in 2021 from $41 in 2020 and the base effect from 2020.
“Beyond 2021, we currently assume that oil prices will return to a medium-term range of $45-$65 per barrel as demand recovers and supply adjusts further, supporting Nigeria’s economic recovery. Overall, we expect real GDP growth to remain sluggish and insufficient to increase living standards over the next two years,” it added.
On the other hand, the agency stated that Nigeria’s credit strengths included its large and diversified economy, supported by substantial hydrocarbons resources and strong domestic demand in the medium-term.
$45-$65 per barrel as demand recovers and supply adjusts further, supporting Nigeria’s economic recovery. Overall, we expect real GDP growth to remain sluggish and insufficient to increase living standards over the next two years,” it added.
On the other hand, the agency stated that Nigeria’s credit strengths included its large and diversified economy, supported by substantial hydrocarbons resources and strong domestic demand in the medium-term.
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