7 alarming issues Fitch raised in its report on the Nigerian economy

President Muhammadu Buhari and the CBN Governor, Mr. Godwin Emefiele
  • Fitch Ratings has downgraded outlook on Nigeria's economic outlook to negative from stable.
  • The Hong Kong-based rating agency says the revision reflects the increasing vulnerability from the current macro-economic policy setting of current administration led by Muhammadu Buhari.
  • Fitch expects the current account will record a deficit of 1.6% of GDP in 2019, its second-weakest level in 24 years.

Fitch Ratings has issued a downgraded outlook on Nigeria's economic outlook most especially its foreign exchange market, to negative from stable, and affirmed the rating at 'B+'.

The Hong Kong-based rating agency said the revision reflects the increasing vulnerability from the current macro-economic policy setting of current administration led by Muhammadu Buhari.

The agency claimed that the policies have raised risks of disruptive macroeconomic adjustment in the medium term “amid continued real appreciation of the naira”.

“A sharp devaluation of the exchange rate under the current policy framework would stoke macroeconomic volatility and significantly weaken some of Nigeria's key credit metrics, including its GDP per capita in US dollars and its share in world GDP,” the rating firm said.

Here are alarming concerns for the Nigerian government about the ratings' report:

  • Appreciation of naira over the last year appears uncorrelated with macroeconomic fundamentals and is set to continue, driven by high inflation.
  • Commodity terms of trade have deteriorated somewhat and will decline further, weighed down by lower oil prices.
  • Nigeria's real effective exchange rate has surged by around 20% since April 2018 and is now close to its high reached in mid-2016, before the exchange-rate devaluation in the wake of the oil-price shock.
  • The report accused the Central Bank of Nigeria (CBN) of maintaining a stable exchange rate via unconventional and economically costly policy measures
  • Fitch expects the current account will record a deficit of 1.6% of GDP in 2019, its second-weakest level in 24 years, after a surplus of 2.6% in 2018. Currently, the account has shifted to deficit from a long-standing surplus, pointing to deteriorating macroeconomic imbalances and adding to external vulnerability.
  • Nigeria's debt remains on an upward path with low fiscal revenues and structural shortcomings in public finance management constrain the sovereign's ability to support a rising debt burden.
  • Fitch says the medium-term economic outlook is subdued and projects an average GDP growth of 2.4% in 2019-2021, well below the 'B' median of 3.4% and the five-year average demographic growth rate of 2.7%. 

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