Nigerian Economy: Moody’s predicts further rise in inflation

Moody’s, the global rating agency, has predicted a further rise in the already historic high in the nation’s inflationary rate to 18 per cent.

According to a Global Credit Research report released by the rating agency in Dubai, Moody’s said
the depreciation implies a material loss in purchasing power given import-price inflation, adding that it expects inflation to accelerate to 18 per cent by year’s end, before falling to an average of 12.5 per cent in 2017.

The report also warned of a further contraction of the nation’s economy, while predicting that the declining value of the naira would engender a marginal increase in Nigeria’s external debt to 5.2 per cent of Gross Domestic Product, GDP, by the end of 2016. It was 3.3 per cent at the end of 2015.

Moody’s, in the report titled, ‘Government of Nigeria: FAQ on Credit Implications of Naira Depreciation, Low Oil Price and Broader Economic Challenges,’ cautioned that though the Federal Government of Nigeria should comfortably meet its financing gap over the next 12 to 18 months, the nation faces challenges over increasing liquidity pressures, rising inflation and stagnant growth.

Moody’s said: “The Government of Nigeria (B1 stable) continues to face low oil prices, volatile oil production, a spike in inflation that has eroded purchasing power, foreign exchange scarcity and an economy that has entered technical recession.

“Moody’s projects stagnation in real GDP in 2016 and only subdued growth at 2.5 per cent in 2017.”

Speaking on report, the Vice President and Senior Credit Officer at Moody’s, Aurelien Mali, said: “We expect that Nigeria will contain pressures on its public finances in the short term.

Read also: Lagos is the most indebted state, NBS report shows

“However, there is greater doubt about the severity of the impact of these challenges, particularly on government liquidity and economic growth, over the medium term.”

The agency however pointed out the recent devaluation of the naira is a positive as it would help the naira to better absorb external shocks over time, while dollar availability should gradually increase.

The agency noted that “Moreover, the fiscal benefit of the depreciation and the current oil price, which is above the budgeted oil price, exceeds the loss in oil output.

“Moody’s notes that attacks on pipelines and key energy infrastructure in the Niger Delta have cut oil production to historic lows. If oil production stagnates at its current, or lower level during the rest of the year, the expansionary spending envisioned by the current budget will be at risk, which would hurt growth.

“However, the Central Bank of Nigeria has sent strong signals to the market that it will prioritize stemming inflation over promoting growth, as well as supporting the return of foreign capital.”

By Timothy Enietan-Matthews….

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