Finance Minister and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala
By Kunle Aderinokun and Obinna Chima
Finance Minister and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala, said Sunday that the upgrade of Nigeria’s economic outlook by Fitch Ratings has laid a strong foundation on which the Federal Government can build the economic reforms and implement the transformation agenda of President Goodluck Jonathan.
According to Okonjo-Iweala, the upgrade by Fitch Ratings was “a great news for the country and a strong foundation for the country to keep building the ongoing economic reforms”.
Fitch Ratings, world’s leading rating agency at the weekend upgraded the country’s Outlook to Stable from Negative. It also affirmed Nigeria’s long-term foreign currency Issuer Default Rating (IDR) at 'BB-' and Long-term local currency IDR at 'BB', while affirming the short-term rating at 'B' and Country Ceiling at 'BB-'.
Okonjo-Iweala, presently out of the country on official assignment, also described the upgrade as “concrete evidence that the President’s economic transformation agenda is being appreciated.”
In a statement signed by her Senior Special Assistant, Communication and Media, Mr. Paul Nwabuikwu, the finance minister said: “We have to keep working hard to realise the key priorities of the transformation agenda – job creation and building key infrastructure. But this positive development gives us a strong foundation to build on. Fitch did this because of the medium term budget of fiscal consolidation proposed by the Ministry of Finance in line with the transformation agenda.”
She commended the efforts of the Ministry of Finance and the Economic Team on the new economic blueprint which contributed to the upgrade.
Also, some analysts expressed the belief that the upgrade was a clear indication of the growing confidence of the international community in Nigeria’s ongoing economic reforms.
The analysts, who spoke in separate telephone interviews with THISDAY, noted that the development would help propel the economy’s growth.
Managing Director/Chief Executive Officer, Financial Derivative Company Limited, Mr. Bismarck Rewane, said the Fitch ratings was good for the country, especially now that some investors were still sceptical about the economy.
He argued that the ratings were lowered to ‘negative’ last year, due to the uncertainty that had surrounded the general elections that were held this year.
To the Managing Director and Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, the improvement in Fitch Ratings report on the country's economic outlook would impact positively on the country's sovereign risk profile.
“This will in turn encourage foreign fund managers to include or increase their investment in Nigerian financial instruments such as Nigerian sovereign bond, FGN bonds, sub-national bonds, treasury bills and equities. This "stable" economic outlook rating will also help Nigerian corporate organisations to access funds from international financial institutions at lower costs,” Chukwu added.
Similarly, a Senior Analysts at BGL Limited, Mr. Femi Areola, said the development would give the federal government the impetus to carry out some of the reforms it had outlined. He argued that the proposal to remove fuel subsidy and the creation of the Sovereign Wealth Fund (SWF), were major factors that were considered by Fitch.
“In our opinion, the proposal to remove fuel subsidy is very good. The greatest problem with the fuel subsidy is corruption. If the fuel subsidy is removed, we expect government to be honest and ensure that the savings from the removal is used to develop the economy,” Ademola added.
In his view, Head of Research, Sterling Capital, Mr. Tayo Omidiji, stated that the upgrade by Fitch might have been influenced by the return of the Finance Minister Dr. Ngozi Okonjo-Iweala, whom he described as a reformer.
He also stressed that the move by government to cut down recurrent expenditure were also factors that might have also earned the country the positive upgrade.
Fitch Ratings had in October last year, lowered Nigeria’s sovereign credit outlook to negative from stable. It had then, cited the depletion of the country’s windfall oil savings and heightened political uncertainty prior to last year’s general election.
But the latest report signed by Director of Fitch's Sovereign Group, Veronica Kalema, and released at the weekend noted: “The revision of the Outlook on Nigeria's ratings to ‘Stable’ from ‘Negative’ reflects an improved outlook for reforms following elections in April and the appointment of a strong economic team. In addition, tighter monetary policy and slightly better fiscal discipline have arrested the rapid pace of reserves declining as seen in the first three quarters of 2010, which had prompted the ‘Negative Outlook’ in October last year.
"The ‘Stable Outlook’ anticipates continued reforms progress, a tighter budget for 2012, including progress towards scrapping the petroleum subsidy and making the Nigeria Sovereign Investment Authority, the sovereign wealth fund, operational. Key planned regulatory reforms in the power and oil sector are moving ahead. The privatisation process in the power sector has started and tariff and gas price reforms which will facilitate the investment needed to address the acute power shortage are scheduled for early 2012.”
Fitch had pointed out that Nigeria's key credit indicators - strong growth, low public debt and a strong external balance sheet – had continued to provide strong support to the rating.
According to the report, the support from State Governors for the removal of the fuel subsidy had increased the probability that the policy would be implemented.
“The reform will reduce foreign exchange and fiscal leakage and reduce pressure on Nigeria's reserves, promote more efficient energy usage and spur downstream investment. In addition, the planned reforms to the agriculture sector would improve output and productivity and increase rural incomes, with a huge medium- term positive impact on the economy, even if they are only partially implemented,” the report added.
Fitch had predicted that Nigeria would sustain its high growth rates of between seven per cent and eight, which were far higher than the 'BB' five-year median of 4.4 per cent; it had placed the country on.
“At 17.8 per cent of Gross Domestic Product (GDP) at the end of 2010, public debt is far below the 'BB' median of 41 per cent. Although Asset Management Corporation of Nigeria’s (AMCON) bonds equivalent to 13 per cent of GDP are guaranteed by the government and increase contingent liabilities, non per forming loans recoveries and sinking fund contributions from the banking sector and central bank are expected, on plausible assumptions, to cover their cost, resulting in no ultimate fiscal cost from the banking sector clean-up. Despite a weakening in the sovereign's balance sheet due to the decline of Forex reserves in 2009 and 2010, it remains stronger than the 'BB' median.
“However, overall fiscal policy at the consolidated government level is still relatively loose, with overall spending still high, making monetary and exchange rate policy more challenging. Proposals to base the 2012 budget on a lower benchmark oil price are therefore encouraging, although the ultimate fiscal stance will depend on the budget that emerges from the National Assembly,” it added.