Fitch Ratings, one of the world’s leading credit rating agencies, and foremost Nigerian economists have uplifting news for Nigerians just a day into 2018. They say the country is not expected to experience another economic recession in the New Year.
After Nigeria had endured a gruelling economic recession in 2016 with its attendant impacts felt in 2017, the United Kingdom-based rating agency said that forecast growth for the country in 2018 would be 2.6 per cent.
The projection is a bit higher than the 2.1 per cent growth projected for Nigeria’s economy by the International Monetary Fund in 2018 while the World Bank had, this year, projected that the Nigerian economy would grow at one per cent in 2018.
“Fitch Ratings forecasts growth of 2.6 per cent in 2018. The recovery will be driven mainly by increased FX (foreign exchange) availability to the non-oil economy and fiscal stimulus, as higher oil revenue and various funding initiatives have raised the government’s ability to execute capital spending plans,” the spokesperson for Fitch, Peter Fitzpatrick, said.
He, however, noted that the growth forecast was subject to downside risks, as the foreign exchange market “remains far from being fully transparent and domestic liquidity has also become a constraint.”
In its latest full report on Nigeria, Fitch said a revival of economic growth by the sustained implementation of coherent macroeconomic policies could lead to a positive rating for Nigeria while a failure to realise an improvement in the economic growth would be negative for the country.
At $344bn in 2017, Nigeria is considered to have Africa’s largest economy with oil only accounting for an average of 12 per cent GDP between 2011 and 2015.
Touching on Nigeria’s public finances, the London-based agency pointed out that the failure of the Federal Government to narrow the fiscal deficit, “leading to a marked increase in public debt”, would be negative for the government.
Therefore, Fitch said it expected higher revenues to drive “a narrowing” of the general government deficit to 3.4 per cent in 2018 as oil production rises and the overall economy recovers.
According to the rating firm’s baseline projections, the GGGD (gross general government debt) will continue to rise to 29 per cent of GDP in 2026.
Explaining further, the agency stated that the main risk to debt sustainability would be a failure to reduce the primary budget deficit, which could bring the debt level to 45 per cent of GDP over the same period.
Speaking on the impact that a delay in approval of the 2018 appropriation bill will have on the economy in the 2018, Fitch said, “The government has again faced delays in getting parliamentary approval for the budget, with much of the delay coming from legislators seeking more spending in their respective states.
“This will remain an obstacle to a smooth budgeting cycle as the next general election in 2019 approaches and members of the National Assembly focus more on shoring up their own regional political bases.”
Foremost Nigerian economists, who spoke with SUNDAY PUNCH, have also expressed a positive outlook and caution similar to Fitch’s.
One of them is Akpan Ekpo, a Professor of Economics and Director General of West African Institute for Financial and Economic Management.
Ekpo said, “Nigeria is not likely to slide back into recession. Growth may hover around two per cent by the second quarter of 2018. However, the country would remain in a state of stagflation for a long time; that is, high rates of unemployment and double-digit inflation (persistent high inflation combined with high unemployment and stagnant demand in a country’s economy).
“These macroeconomic fundamentals must show declining trends for a healthy recovery to continue. In addition, rising unemployment, particularly among youths, would worsen the poverty situation. Technically, we exited the recession but we are still in the stagflation phase. The economy is on a recovery path though fragile.”
The respected economist, however, expressed regrets that “the matter of the appropriation bill remains an embarrassment and it is very disturbing. There is no good reason for the National Assembly to say that the 2018 budget cannot be examined and passed until March.”
According to him, the effective implementation of the Economic Recovery and Growth Plan will generate employment in 2018.
“The high rate of unemployment requires the involvement of the government at all levels in creating jobs. Governments at all levels have failed in the provision of basic needs of Nigerians even when the people are ready to pay. Health care delivery, quality education, unemployment, housing, running water, sanitation and electricity are not available to millions of Nigerians.
“These social issues must be addressed if the country must move forward. The basic amenities are only available to the elites who form a very tiny fraction of the population. Furthermore, there must be better resolve, through pragmatic programmes and strategies, to create employment in 2018,” Ekpo added.
Another expert, a Professor of Banking/Finance and Economic Development, at the University of Nigeria, Nsukka, Josaphat Onwumere, said the economic storm experienced by Nigerians was over.
“My response to your question whether Nigeria will likely slide into recession again will be in the negative. It is true Nigeria had gone through a recession that many regarded as being unprecedented, as it witnessed many businesses closing shop, many workers losing their jobs and the naira losing its value. I remember that sometime in June while I was on a radio programme, I predicted that Nigeria would exit the recession in September.
“The appropriate implementation of the 2017 budget was instrumental in ensuring that the country got out of the recession. As a matter of fact, if the present administration continues to improve on what they are currently doing, the economy should improve. I do not think Nigeria will experience any recession in 2018,” Onwumere told SUNDAY PUNCH.
Expressing a related outlook, another Professor of Economics, Sheriffdeen Tella, asserted that Nigeria’s sliding back into recession depended on “policy mix and policy implementation.”
He said, “If the 2018 budget is passed in time, like within the first quarter of the year and implementation starts immediately with fewer bottlenecks in the release of funds for capital projects, the nation will not slide back into recession. Expenditure on capital budget items has higher multiplier effects on growth, though this occurs at a slower pace than recurrent expenditure which effects can be felt within a quarter. That is from the fiscal side.
“The monetary authority needs to bring down the interest rates to make credit cheaper for businesses. Bringing down interest rates will not only make credits available in the money market but also divert funds to the capital market as investors could decide to divert their funds to long-term investments like shares or development stocks.”
Tella added that such a measure would also lower the cost of fund to the government that goes to the market to borrow to finance its budget.
He, however, stated, “We have not actually exited from the recession as the positive growth rate cannot be said to be steady and sustainable. Import is still high and the increase in oil prices is what has propped up the revenue and the GDP marginally, not (increased) production in the non-oil sector.”
Weighing in on Nigeria’s economic outlook in 2018, an economic analyst and the Chief Executive Officer of Cowry Asset Management Limited, Johnson Chukwu, believes that the nation’s economy in 2018 will be better than that of 2017.
While admitting that this year had been a tough one for Nigerians, he stated that things could get better in the new year.
Chukwu said, “In the third quarter of the year, the economy improved by 1.4 per cent. It is an improvement over 0.72 per cent in the second quarter. But beyond the fact that the economy is recovering, the misery index is high. Nigerians are still going through a lot of difficulties. If you look at the major factor that determines the misery index – inflation rate and unemployment rate – the inflation rate at the last count, in November, was 15.9 per cent; unemployment has grown to 18.8 per cent.
“So, on the average, in terms of the standard of living, Nigerians are worse off than they were even in the previous year, because we have a high rate of unemployment and we still have an inflation rate that peaked at 18.7 per cent in January, although it has moderated to 15.9 per cent. On balance, it was a tough year and, as if to crown it all, Nigerians are ending the year with a biting energy scarcity.
“I think 2018, on balance, will be better than 2017. The economy is recovering. We have moved away from a recession to a recovery period, though the growth is still very low, compared to population growth. Like I said, we have a gross domestic product that has improved by 1.4 per cent, whereas the population growth rate is close to three per cent.”
The economic analyst expressed hope that the government would spend more money in 2018 because it is a year before the country’s general election.
“In terms of infrastructural development, we should see a lot of award of contracts and mobilisation. Fortunately for the country, we’ve seen oil price reached $67 per barrel, so the government will have more liquidity to engage in reflationary measures, as well as a lot of expenditure that will be tied to political campaigns. We should see higher levels of money circulation in the country.
“We should see a lot of ad hoc jobs that will be created in the construction industry. On balance, 2018 should be better than 2017, given the improved production of crude and the high oil price,” Chukwu noted.
In order to consolidate on the new year’s positive outlook, Chukwu advised the Federal Government to reduce the cost of business through improvement in infrastructure.
The economist added, “The government needs to create more jobs in 2018 being the penultimate year of the general election. This requires assisting the private sector to grow through cheap credits, improved power supply and easing transportation problems for movement of goods across the country.
“Governments at all levels should not only spend money to create jobs and promote consumption but should also ensure prompt payment of salaries because production or supply without effective demand will lead to retrogression in output and incomes.
“State governments should not see the payment of salaries as doing a favour to workers but as a way to promote consumption which leads to further production of goods and services.”