Bumpy Ride for Economy in 2019


The Nigerian economy faced a lot of challenges in the outgoing year amid a slowing global economy, elevated geopolitical risks and fragile investor sentiment, writes Obinna Chima

Notwithstanding the positive Gross Domestic Product (GDP) numbers recorded by the country in 2019, the economy is still not out of the woods yet.

The economy hit a lot of bumps in the road in the outgoing year and the way forward is unlikely to get any smoother.

From concerns of political risks prior to the 2019 elections that took place in the first quarter of the year, the country’s broadening fiscal deficit, its continued weak revenue generating profile, rising population, widening inequality, and a myriad of other economic challenges, the economy struggled to exceed two per cent, with third quarter 2019 GDP at 2.28 per cent.

Also, crude oil price, Nigeria’s major source of revenue remained soft in 2019.
In addition, Nigeria’s current account (CA) balance has shifted to deficit from a long-standing surplus, pointing to deteriorating macroeconomic imbalances and adding to external vulnerability.

Owing to this and some other concerns, Fitch, one of the leading global rating agencies, anticipated that the CA in Nigeria would record a deficit of 1.6 per cent of GDP in 2019, its second-weakest level in 24 years, after a surplus of 2.6 per cent in 2018.

“Fitch forecasts the CA deficit will moderate to an average of 0.7 per cent of GDP in 2020-2021,” it stated this in its latest rating on Nigeria, where it revised the outlook on Nigeria’s long-term foreign currency issuer default rating (IDR) to ‘Negative’ from ‘Stable,’ but affirmed the country’s rating at ‘B+’.

It also pointed out that general government (GG) debt in the country remains on an upward path, while particularly low fiscal revenues and structural shortcomings in public finance management (PFM) constrain its ability to support a rising debt burden.

According to Fitch, the GG debt/revenue ratio is particularly high, at 333 per cent (Federal government (FGN), debt: 777%) in 2019, and will rise close to 400 per cent (FGN debt: 922%) in 2021, well above the forecast ‘B’ median of 248 per cent.

As a result of this, it stated that Nigeria’s medium-term economic outlook was subdued. Fitch also projected an average GDP growth of 2.4 per cent for the country between 2019 and 2021.
This, it stated would be well below the ‘B’ median of 3.4 per cent and the five-year average demographic growth rate of 2.7 per cent.

“The prospects for supply-side, fiscal and exchange-regime reforms that could tackle the major constraints for Nigeria’s credit profile are weak, as reflected by the record in recent years. Emerging rivalries within the ruling APC party, possibly sparked by early dissensions over the 2023 succession to president Buhari, could hamper policy-making,” it stated.

Prior to the Fitch Ratings, Moody’s Investors Service, another global credit rating agency, had also changed its outlook on Nigeria’s ratings to negative from stable.
According to the rating agency, the negative outlook reflected Moody’s view of increasing risks to the government’s fiscal strength and external position.

It explained: “Already weak government finances will likely weaken further given an extremely narrow revenue base and persistently sluggish growth that hinders fiscal consolidation.
“As pressure mount, there is a risk that the government resorts to increasingly opaque and costly options to finance a moderate but rising debt burden.

“Moreover, vulnerability to an adverse change in capital flows is building in light of Nigeria’s increasing reliance on foreign investors to fund the country’s foreign exchange reserves.”

Furthermore, it pointed out that its decision to affirm the rating at B2 recognised a combination of credit strengths, including the country’s large and diversified economy supported by vast oil and gas endowments, notwithstanding persistent credit weaknesses such as its very weak institutions and governance framework and in particular poor public finance management.

“Concurrently, Moody’s has maintained Nigeria’s country risk ceilings at their current levels: Foreign Currency bond ceiling at B1, Foreign Currency deposit ceiling at B3, and Local Currency bond and deposit ceilings at Ba1.”

Moody’s also said the drastic reduction in Nigerian banks’ non-performing loans (NPLs) will help in reducing the risk of capital erosion from unexpected losses and lessens the need for loan loss provisions.

External Reserves
So far, in 2019, the country’s external reserves have depreciated by 10.5 per cent or $4.105 billion, from the $43.075 billion it was at the beginning of the year, to $38.970 billion as of December 19.

The decline was attributed mainly to foreign exchange market interventions and direct payments. The external reserves position could finance 5.3 months of imports of goods and services, or 9.3 months of goods only, using the import figure for second quarter 2019.

A breakdown of the external reserves by ownership showed that the share of the Federation reserves was US$0.32 billion (0.8%); Federal Government, US$6.09 billion (15.7%); and the CBN, US$32.37 billion (83.5%)


The Consumer Price Index (CPI) which is used to gauge the level of inflation in the country hovered around 11 per cent in 2019, despite concerns of inflationary pressure since the closure of all the country’s land borders. From the 11.35 per cent it was in January, the CPI stood at 11.85 per cent at the end of November 2019. The CPI for November released by the National Bureau of Statistics (NBS) had shown that food inflation rose to 14.48 per cent compared to 14.09 per cent in the preceding month The CPI report attributed the rise in the food index to increases in the prices of bread, cereals, oils and fats, meat, potatoes, yams and other tubers, and fish.

The average annual rate of change of the food sub-index for the 12-month period ending November over the previous 12-month average was 13.65 per cent, 0.11 percentage points from the 13.54 per cent in October.

Monetary Policy
The Monetary Policy Committee (MPC) met a total of six times this year. The benchmark monetary policy rate (MPR) which was at 14 per cent at the beginning of the year, was lowered to 13.5 per cent after the first two months, and was left at that rate throughout the year.
The central bank deployed a lot of unorthodox monetary policies, using its development finance mandate, in its quest to reflate the economy.

The CBN Governor, Mr. Godwin Emefiele, who during the year, was reappointed for a second term of five years by President Muhammadu Buhari, has continued to defend the central bank’s unconventional monetary policy.

The CBN governor explained that just like fiscal policy, monetary policy could, at a time when development challenges abound, complement the efforts of fiscal policy in employment generation, wealth creation and attainment of other growth objectives.

He highlighted countries such as the United States of America, Brazil, among others, that had to rely on unconventional monetary in times of economic difficulties to resuscitate growth.

“Within the CBN, our unconventional methods (especially in the management of the forex market and our development financing) supported by the orthodox approaches (in the form of our timely adjustments of monetary policy rate) have been able to optimally balance the delicate objectives of price stability and real output growth.

“We will continue to develop policy instruments and device ways of ensuring that an optimal mix of heterodox policies is continually deployed to engender the overall wellbeing and prosperity of the Nigerian economy. Our overall aim remains the concurrent attainment of price stability, real growth, full employment, and poverty reduction,” he added.

Nevertheless, Nigerian banks’ non-performing loans (NPLs) reduced to 6.6 per cent at the end of October compared to the 14.1 per cent it was in 2018.

This was the first time the NPLs would drop to a single digit in the past 42 months.
Reacting to this development, Moody’s banking analysts, Mr. Peter Mushangwe, described it as credit positive.

“The Nigerian banking system’s non-performing loans ratio reduced to 6.6 per cent at the end of October from 14.1 per cent a year earlier, according to the central bank. This is credit positive, as lower NPLs reduce risk of capital erosion from unexpected losses and lessen the need for loan loss provisions. The improvement in asset quality is mainly due to banks’ growing loan books, write-offs and successful workout of exposures,” he stated.

Moody’s has maintained a stable outlook on the Nigerian banking system.
“Our view reflects the banks’ resilient capital buffers and their stable deposit bases. Although Nigerian banks’ asset risk and profitability will remain key rating challenges, we expect these challenges to gradually ease in 2020 as the economy improves further,” the agency added.

Analysts’ Reactions
In his assessment of the performance of the economy in 2019, a former Director General, West Africa Institute of Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, noted that the economy didn’t perform better in the outgoing year.

“The data speaks to that. That the economy has not done well. For example, up to the third quarter of 2019, the major macro indicators all moved the wrong direction. For example, inflation rate is still double digit; unemployment and under-employment is about 43 per cent – once you have those two that high, then there is a problem.

“The rate of growth is about 2.1 per cent, which has been sluggish since we came out of recession in 2016. But that rate of growth is less than the rate of growth of the population. If you combine all of those, those indicators and look at the lending rate, which is still very high, then there is no say you can say the economy has done very well. It is really a dismal performance,” he argued.

On his part, the President, Chartered Institute of Bankers of Nigeria, Dr. Uche Olowu, described the outgoing year as, “being turbulent.”

“But if you look at the antecedent of what has happened before now, the ship has been steadied. That is the best you can describe 2019. You have unemployment still very high, the exchange rate has been stable and the central bank has done a good job by defending the naira and monetary policy has been very stable.

“Of course, the oil price has done Nigeria good because the volatility wasn’t much in 2019. But in terms of infrastructure, we have not seen the impact,” he added.

However, the general expectation among Nigerians is that in the coming year, some of the investments in infrastructure such as rails and roads, would have been completed and the situation in the power sector addressed to enhance ease of doing business in the country and strengthen economic growth.