- And low debt position, but lower oil prices to pressure public finances
Nigeria (Ba3 stable) benefits from a resilient economy and robust fiscal position, although the recent drop in oil prices will likely put pressure on public finances and could lead to the widening of fiscal deficits, says Moody’s Investors Service in its annual Nigeria Credit Analysis, published yesterday.
The rating agency notes that despite its exposure to lower oil prices, Nigeria’s real economic growth will likely reach 5% in 2015, supported by the development of the non-oil sector.
“Over the last ten years, Nigeria has grown in real terms by 8.3% annually, emerging in 2014 as the largest economy in Africa and displaying improving macroeconomic indicators, such as inflation and investment. Combined with an increasingly diversified economy — led by the services sector — we expect that the economy will continue to expand, and forecast that real GDP growth will reach 5.0% in 2015,” says Aurelien Mali, Moody’s senior analytical advisor – Africa, and author of the report.
Nigeria’s economy turned out richer than previously thought after the rebasing of the economy from 1990 to 2010, with nominal GDP at $516 billion. The revised figure is nearly twice as high as the previous estimate of $273 billion, while its 2013 GDP per capita has been revised to $5,746, significantly higher than the original expectation of $1,671.
While oil revenues account for 60% to 70% of government revenues and have helped support the country during times of cyclical highs, the current lower oil prices will put pressure on the local currency, and may cause government budget deficits to widen, as the low level of fiscal savings is unlikely to cover shortfalls resulting from lower oil revenues, says Moody’s.
Nigeria’s general government debt is very low, estimated at 13.2% of GDP in 2014 with debt as percentage of government revenues estimated to reach 121.8%, according to Moody’s, although both figures will likely increase in 2015 due to larger deficits. The rating agency projects 2015 debt to GDP to rise to an estimated 14.6% and debt to revenues to 130%, both still low levels when compared with most Ba3-rated peers.
A risk lies in the fact that Nigeria’s oil production will likely decline significantly from over the next decade absent increased investment in this sector, in particular, to develop Nigeria’s large deepwater offshore oil deposits, says Moody’s. For the moment, international oil companies have delayed investment amid uncertainty surrounding the Petroleum Investment Bill, which has been delayed in parliament for the last six years.
