By UCHE CHRIS
It seems the economic situation in the country is going from bad to worse as hope for an improvement has further been dashed by the new report on the economy which rates it negative from the previous stable. This new rating has damning implications for the economy, according to financial experts.
The report comes in the heel of last week’s Gross Domestic Product, GDP, figure released by the National Bureau of Statistics, NBS, of a 2.27 percent growth in 2019, which was higher than experts’ projections, including IMF of 2.1 percent for the year. Many people had thought it was an indicator of a turn-around for the economy.
But the bear run in the Nigerian stock market which has been unrelenting and the plunging oil price to below 2020 budget price benchmark of $57 per barrel over the Coronavirus had cumulatively raised fears of another possible recession if it persists.
However, the obvious bull in the China shop is the prevailing and threatening in security in the country which attracted the attention of a delegation of Christian groups in America who warned western countries not to sit back and watch the Nigeria slide into another Somalia.
This followed a series of Christian targeted killings in recent time by the insurgent Islamic group, Boko Haram, raising fears of religious pogrom in the north. Earlier in the year, the U.S. government and other foreign nations had raised a travel alert on the country.
All this pointed to a challenging time ahead for the economy as the budget which is already in crisis over revenue shortfalls may further be affected. Already Nigeria is using almost 62 percent of his revenue to service debt which stands at about $84 billion or N26 trillion.
International credit rating agency, Standard & Poor’s (S&P), announced on Monday it had lowered Nigeria’s credit rating to “negative” from “stable” due to its declining foreign exchange reserves.
Foreign-exchange reserve levels have fallen from $45 billion at mid-year 2019 to $38 billion at end-2019 and $36.5 billion in February 2020.
With S&P’s outlook change, all three international rating agencies now have a “negative” outlook on Nigeria’s sovereign credit rating.
An investment analyst and consultant, Mr. Teslim Shitta Bey, said the new rating poses serious implication for the economy as borrowing will be more expensive as the riskiness of the country on account of the rating. Also the country cannot access Euro-bonds because of the statutory requirement for at least a stable rating for institutional investors.
“It is a catch 22 for the country; if the country cannot access foreign capital which it wanted to use to substitute for domestic borrowing, it will be forced to borrow locally which is more expensive and also crowd out the private sector. It throws the entire basis and calculations for the 2020 budget into major crisis,” he said.