Nigeria’s economic risks heighten, says Standard & Poor’s
Nigeria’s economic risks have increased in recent months and there are credible concerns to warrant a downgrade of the country’s rating, Standard & Poor’s, has said.
In its latest review of sub-Saharan African economies, titled, ‘Sub-Saharan Africa Sovereign Rating Trends Mid-Year 2014,’ the global rating agency outlined concerns over Nigeria’s heightened political and institutional risks.
According to the report, Nigeria still faces major challenge of credit quality in spite of its new status as Africa’s largest economy.
It said the downgrade of Nigeria’s rating from stable to negative reflected the agency’s view that risks to the country’s ratings have increased.
The report pointed out that tensions within Nigeria’s ruling party have heightened political and institutional risks citing the ruling Peoples Democratic Party (PDP) internal crisis.
It added that extensive oil theft and installation shutdowns in the Niger Delta have seen oil production fall below levels the government assumed in its 2013 budget and 2014 budget plan, while fiscal buffers in the excess crude account (ECA) have been drawndown over the last year.
“We also believe the possibility of increased political influence on the central bank’s management could hamper progress in banking sector regulation and supervision. In addition to these three main elements, the threat from the terrorist group, Boko Haram, continues to be significant and is extending beyond the northeast, despite military and diplomatic efforts,” the report stated.
Standard & Poor’s (S & P) noted that while Nigeria overtook South Africa to become Africa’s largest economy after it rebased its GDP in April, the rebasing on its own might not improve Nigeria’s credit quality in the near term given the challenges the national economy still faces.
Nigeria’s National Bureau of Statistics (NBS) rebased the country’s GDP by using new data sources, definitions, and methods, which saw more industries included and gave a higher weighting to certain sectors, especially in services such as finance and telecommunications. Under this new methodology, Nigerian GDP for 2013 increased from about $270 billion to about $510 billion, substantially larger than South Africa’s$351 billion.
The report also cited South Africa as another country with higher risks given its ongoing lackluster growth against a backdrop of relatively high current account deficits and rising general government debt.