The Economist Ranks Nigeria High on Financial Strength

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By Dike Onwuamaeze

The Economist has given Nigeria a favourable ranking in an assessment of the performance of 66 emerging economies in terms of their respective financial strength.

The international weekly magazine rated the countries based on their public debt, foreign debt, cost of borrowing and reserve cover.

Nigeria, which featured as number 14, was adjudged to be strong in term of public debt; it also got a favourable rating in terms of foreign debt, but a weak rating in terms of cost of borrowing.

From the ranking, the country was adjudged to be fine in terms of reserve cover.

“Our ranking examines 66 economies across four potential sources of peril. These include public debt, foreign debt (both public and private) and borrowing costs (proxied where possible by the yield on a government’s dollar bonds). We also calculate their likely foreign payments this year (their current-account deficit plus their foreign debt payments) and compare this with their stock of foreign-exchange reserves.

“A country’s rank on each of these indicators is then averaged to determine its overall standing. The strongest countries, such as South Korea and Taiwan, are overqualified for the role of emerging markets. Many bigger economies, including Russia and China, also appear robust. Most of the countries that score badly across our indicators tend to be small. The bottom 30 account for only 11 per cent of the group’s GDP, and less than a quarter of both its foreign and its public debt.

“The ranking also reveals the vast differences in the source and scale of potential weaknesses. Countries like Angola, Bahrain and Iraq have public debt that some reckon will exceed 100 per cent of GDP this year. But about half of the economies we examine have debts below 60 per cent of GDP, the threshold that euro-zone members are supposed to meet (and which few do),” it noted.

According to the London-based magazine, Covid-19 hurts emerging economies in at least three ways: by locking down their populations, damaging their export earnings and deterring foreign capital.

It noted that even if the pandemic fades in the second half of the year, GDP in developing countries, measured at purchasing-power parity, would be 6.6 per cent smaller in 2020 than the IMF had forecast in October.

The damage to exports will be acute, it stated, due to the low oil prices.

“To weather the crisis, emerging economies may need at least $2.5 trillion, the fund reckons, from foreign sources or their own reserves. One way to ensure countries have more hard currency is to stop taking it from them. The G20 group of governments has said it will refrain from collecting payments this year on its loans to the poorest 77 countries (though the borrowers will have to make up the difference later).

“The G7 group of countries has urged private lenders to show forbearance too. A group of over 70 private creditors supports the idea, while noting its “complexity” and the “constraints” lenders face.

“A sweeping debt standstill may also be less necessary than it seemed even two weeks ago, as investors have calmed somewhat. That may reflect over-optimism about the course of the pandemic. But even false optimism can be of true help to emerging markets, by allowing them to refinance debt on affordable terms,” it added