AB9NGK Nigerian Central Bank, Abuja, Nigeria. Image shot 2007. Exact date unknown.

 • S&P affirms Nigeria’s ratings at ‘B/B’, Stable Outlook
 • Cautions against high debt service cost
 • Forecasts 2.4% GDP growth in 2018

By Obinna Chima

Following the concession made by the Senate to screen and confirm the nominees of President Muhammadu Buhari to fill the posts of deputy governors of the Central Bank of Nigeria (CBN) and the four members-designate of the Monetary Policy Committee (MPC), the CBN has said it will hold its first meeting of the MPC this year on April 3 and 4.
This is just as Standard and Poor’s (S&P) has affirmed its ‘B/B’ long and short-term sovereign credit ratings on Nigeria. The agency also assigned a “stable outlook” on the country.

The MPC was unable to hold its first meeting last January because it could not form a quorum.
This arose from the July 2017 resolution of the Senate to suspend all confirmation processes for presidential nominees whose offices are not specifically listed in the 1999 Constitution.
The resolution was made after Vice-President Yemi Osinbajo, by his remark, exacerbated the rift between the Senate and the Executive over the rejection twice of the nomination of Mr. Ibrahim Magu as Chairman of the Economic and Financial Crimes Commission (EFCC) by the upper legislative chamber.
Osinbajo had said since the EFCC was not specified in the Constitution, there was no need to have sent the nomination to the Senate in the first instance.
The Senate thereafter resolved to suspend consideration of all such nominees, pending the legal determination of its power of confirmation.

However, due to the importance of the MPC meetings to the economy, the Senate reconsidered its stance last week on the CBN nominees and gave its Committee on Banking and Financial Institutions one week to screen them.
THISDAY had also exclusively reported that the CBN would have to defer the March MPC meeting originally slated for Monday and Tuesday by a few days, owing to the timeframe given to the Senate committee to conclude its work.
Confirming the postponement, CBN Governor, Mr. Godwin Emefiele, said last week that the Bank’s Committee of Governors would decide on a new date for the meeting of the MPC.

When contacted Sunday, CBN spokesman, Mr. Isaac Okorafor, said the Committee of Governors had now slated the meeting of the MPC for April 3 and 4, adding: “We are grateful that the Senate reconsidered its stance on our nominees, given the importance of the MPC to the country’s economic well being.
“The new dates, we hope, will give the Senate the time it needs to conclude the screening and confirmation process of the nominees of the president.”
The nominees for the deputy governorship posts of the central bank are Mrs. Aisha Ahmad and Mr. Edward Adamu, while the nominees to be considered for the MPC are Professor Adeola Festus Adenikinju, Dr. Aliyu Rafindadi Sanusi, Dr. Robert Chikwendu Asogwa and Dr. Asheikh A. Maidugu.
Meanwhile, one of the leading global rating agencies, S&P, has affirmed its ‘B/B’ long and short-term sovereign credit ratings on Nigeria and assigned a “stable outlook” on the country.
In its sovereign rating released at the weekend, S&P also affirmed its long and short-term Nigeria national scale ratings at ‘ngBBB/ngA-2’.
According to S&P, the stable outlook signals its assessment that non-oil-sector improvements could support higher economic growth and fiscal revenues over the next 12 months.

However, the agency warned that it may lower its ratings if it does not see the significant fall in fiscal deficits that it anticipated in its base case, but pointed out that it could raise its ratings on Nigeria if it sees much higher economic growth prospects than its base case or the country’s external liquidity indicator improves, perhaps due to further accumulation of international reserves alongside an extension of external debt maturities.
“The ratings on Nigeria are supported by moderate external indebtedness and a relatively low general government debt stock,” the rating agency said.
S&P also expressed concern about high debt service cost in Nigeria.
“The ratings remain constrained by our view of the country’s low economic wealth, weak institutional capacity, lower real Gross Domestic Product (GDP) per capita trend growth rates than peers at similar development levels, and low monetary policy credibility.
“Economic performance is still weak, with trend growth below peers. Nigeria’s current pace of economic growth remains low relative to peers, with similar wealth levels.
“Political decision-making in Nigeria can be unpredictable since government institutions are relatively weak. Despite underlying tensions and complexities, Nigeria is a democratic system that has weathered a transfer of power between different political parties.

“Nigeria is a sizable producer of hydrocarbons. The oil sector’s direct share of nominal GDP is officially estimated at about 10 per cent, but oil and gas account for over 90 per cent of exports and at least half of fiscal revenues,” it stated.
Nigeria emerged from its first recession in 25 years in the second quarter of 2017, with the economy growing in real terms by 0.8 per cent last year, compared to a contraction of 1.6 per cent in 2016.
The recovery was driven by improving oil prices, increased foreign currency inflows, and strong agriculture sector performance.
Oil production also stabilised at about 1.9 million to 2.1 million barrels per day, after disruptions in 2016.

In the near term, S&P estimated that the economy would grow at 2.4 per cent in 2018, compared with its previous forecast of three per cent, noting further that growth would average 2.8 per cent between 2018 and 2021.
“Overall, we forecast that Nigeria’s gross general government debt stock (consolidated debt at the federal, state, and local government levels) will average 27 per cent of GDP for 2018-2021, comparing favourably with peer countries’ ratios.
“We also anticipate that general government debt, net of liquid assets will average 18 per cent of GDP in 2018-2021.
“We include debt of the Asset Management Corporation of Nigeria (AMCON); around five per centof 2018 GDP, that was created to resolve the non-performing loan (NPL) assets of the Nigerian banks–in our calculation of gross and net debt.
“Over 70 per cent of government debt is denominated in naira. Despite the relatively low government debt stock, general government debt-servicing costs as a percentage of revenues are high and have increased in recent years from below 10 per cent in 2014 to our projection of over 20 per cent on average, in 2018-2021.
“The central government alone has debt servicing costs of close to 50 per cent of revenues, which in our opinion, limits fiscal flexibility. The steep increase in the ratio is due to a combination of declining oil revenues since 2014 and higher borrowing costs in the domestic market.

“The government has borrowed externally to fund maturing short-term domestic debt obligations, which are costly, as a way to reduce borrowing costs,” it explained.
S&P also noted that following years of heightened risks, the operating conditions for the Nigerian banking sector has started to improve due to the gradual economic recovery, rising oil prices, increasing U.S. dollar supply in the banking system, and the country’s successful tapping of the Eurobond market.
“The majority of banks have overcome their short-term liquidity challenges. We expect muted loan growth as well as gradual improvements in asset quality and profitability, with top-tier banks faring better than the sector average.
“Capital adequacy remains exposed to an unexpected weakening of the naira and weak internal capital generation because of the potential provisioning shortfalls and pressure on net interest margins on the back of the federal government’s conversion of part of its short-term debt to longer-dated U.S. dollar-denominated debt.
“We understand that banks have received guidance to report their year-end 2017 results with naira exchange rate at about $1 to N330.

“In addition, the CBN has restricted banks from distributing dividends if their NPLs ratio exceeds the five per cent regulatory limit.
“We may see some banks convert their banking licence to a national one to meet the lower minimum capital adequacy ratio.
“The introduction of the one per cent additional buffer has been suspended for now to avoid putting further pressure on banks,” it stated.