Moody Rating Agency has projected a GDP growth of 2.5 per cent for Nigeria at the end of the year. This means that the agency’s projections for Nigeria’s economy are favourable. Following the -1.5 per cent contraction in GDP last year, it projects GDP growth at 2.5 per cent in 2017 followed by a 4 per cent growth in 2018. The growth forecast is on the back of positive base effects for the oil economy, government measures to expand specific non-oil sectors, the federal government’s commitment to fund large infrastructure projects post-2017 budget passage as well as expected uptick in global oil prices.
Moody’s oil price projection for 2017 is between $40 per barrel and $60 per barrel. Nigeria Bonny Light is projected at an average crude oil price of $57 per barrel in 2017 above the budget bench mark which would make the 2017 budget realisable.
Moody said that Nigeria inflation rate for 2017 and 2018 will be between 17 per cent and 13per cent respectively. It said that increased supply of foreign exchange by the Central Bank of Nigeria was cited as the primary reason for the 2018 inflation forecast.
It further said that the current foreign exchange liquidity in the market is more cyclical than structural, driven mainly by a recovery in oil earnings and to a lesser extent international borrowings.
According to the Agency “If oil earnings should fall again, the CBN is most likely to reduce foreign exchange sales than run down reserves in order to preserve creditworthiness – essentially a return to the strategy that prevailed through most of last 12-15 months.
Moody’s publicly rates six commercial banks which represent 65 per cent of total assets in the Nigerian banking system. The ratings agency’s view on the Nigerian banking sector is that it is challenged but resilient with a stable outlook.
The stable outlook reflects Moody’s expectation that acute foreign shortages will ease gradually as Nigeria’s oil and gas export revenues stabilise. However, it expects loan risks to remain high.
The agency expects the sector’s non-performing loans (NPL) ratio to rise marginally to 14-16 per cent from 14 per cent at end-2016. These ratios are close to the levels seen in 2010, but below the recent peak of 33 per cent in 2009 when the sector was effectively under water. It expects the increase to be driven by exposures to the oil and gas sector, import-dependent borrowers as well as from foreign-currency loans.
Its current rating for Nigeria is B1 with a stable outlook. An upward revision is not on the cards at least for the next 12- 18 months. Some downside risks for Nigeria’s sovereign rating as cited by Moody’s include oil price volatility, continued erosion of debt affordability, rising political risk and the lack of sound governance and transparency.
