’Femi Asu
An international credit rating agency, Moody’s Investors Service, has said the key issue for Nigeria will be improving its ability to generate revenue.
Moody’s said on Monday that although Nigeria’s economy, external positions and public finances were expected to stabilise, its continued dependence on oil and gas meant it would face a range of challenges in the coming years.
It stated these in a new report titled, ‘Governments of Nigeria and Angola: Angola’s intensifying liquidity risks and rising debt burden underpin weaker credit profile compared to Nigeria’.
“Both Nigeria and Angola have seen their credit profiles come under pressure following the oil price shock in 2014,” said Aurélien Mali, a Moody’s Vice President/Senior Credit Officer and co-author of the report.
He stated that the rise in hydrocarbon production would support growth in both countries and help to stabilise their deficits.
“But revenue generation remains a key weakness for Nigeria, while Angola will find it hard to cut its already sizeable debt load as its kwanza currency continues to depreciate,” he added.
Nigeria and Angola are two of Sub-Saharan Africa’s largest economies, accounting for close to 40 per cent of the nominal Gross Domestic Product of the sovereigns that Moody’s rates in the region.
According to the report, while increased oil production will support a pick-up in growth in both countries in 2018, they face challenges in attracting more investment in a low oil price environment.
The report stated, “Nigeria has struggled to reform its oil sector, improve the regulatory environment and increase transparency. However, the Angolan authorities have created a predictable and transparent environment for the oil sector compared to Nigeria and other regional peers.
“In 2018, Moody’s expects the higher oil price and fiscal consolidation efforts to contain budget deficits at around 2.6 per cent of Gross Domestic Product for Nigeria and around two per cent for Angola.”
Moody’s added, “Increasing non-oil tax intake remains one of the biggest challenges both countries face in the coming years. The Nigerian authorities’ efforts to increase non-oil revenue since late 2015 have been largely unsuccessful.
“Angola’s new administration is also increasing attempts to improve non-oil revenues, for instance, with a new property tax and a planned VAT tax from 2019 onwards. Nevertheless, Moody’s expects revenues to remain at similar or only slightly higher levels in 2018-19, averaging 7.7 per cent of the GDP for Nigeria and 19.9 per cent for Angola.”
The report noted that the increase in Nigeria’s debt burden was much slower in recent years, adding, “Moody’s expects it to stabilise at around 20 per cent of GDP in 2018.”
It added, “Angola’s largest credit challenges are its sizeable borrowing requirements and liquidity risks. The country’s general government gross borrowing requirements will be 20 per cent of the GDP in 2018, a significantly higher level than previously thought.
“Nigeria’s gross borrowing requirements are lower, estimated at 6.2 per cent of the GDP in 2018, of which four per cent of the GDP will be funded in the domestic market.”
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