Nigeria’s heavy dependence on oil and gas as its major source of revenue could foresee a drop in the country’s GDP.
Fitch Ratings, a global ratings agency, has shared that Nigeria will continue to experience a sluggish recovery in its economy, driven by the rebound in oil prices and the expansion of services.
The agency predicted that the country’s GDP growth would average 2.2 per cent in 2019-2020, below its previous 10-year average of 4.2 per cent
It revealed that investment was held back by regulatory uncertainty in the oil sector tight credit supply, and a weak business climate.
“A large infrastructure deficit, which is illustrated by acute power supply shortages and security challenges, also dampen the medium-term growth outlook,” it added.
According to the agency, the country’s fiscal performance mostly remains a function of fluctuations in oil revenues.
“However, the implicit subsidy of petrol prices (around 0.6 per cent of GDP in 2018), the gradual clearance of joint-venture cash call arrears (outstanding stock of one per cent of GDP at end-2018) and the conversion of government oil proceeds to naira at a below-market exchange rate continue to constrain budget receipts from hydrocarbon extraction,” it said.
Fitch noted that public finances were vulnerable to disruptions to oil production caused by recurrent acts of vandalism or other force majeure affecting the country’s ageing oil infrastructure.
It said, “Nigeria’s particularly low non-oil fiscal revenues, averaging only 3.7 per cent of GDP over 2016-2018, are a key rating weakness, reducing the fiscal space and resulting in a high fiscal Brent breakeven price of $129 per barrel in 2019 and $149 in 2020, according to Fitch’s estimates”.