Moody’s, one of the big-three credit rating agencies in the world, yesterday, warned of a further contraction of the Nigerian economy.
It disclosed 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 end of 2016 from 3.3 per cent in 2015.
According to Moody’s, inflation is to accelerate to 18% by year’s end.
The rating agency however said the Central Bank of Nigeria (CBN) devaluation of the naira is a positive step in building the economy.
Moody’s made the disclosure in a report released, entitled ‘Government of Nigeria: FAQ on Credit Implications of Naira Depreciation, Low Oil Price and Broader Economic Challenges’.
The report read in part: “Overall, Moody’s views the recent devaluation of the naira as credit positive. The new system should enable the naira to better absorb external shocks over time, and dollar availability should gradually increase,” the report read.
“However, the depreciation implies a material loss in purchasing power given import-price inflation. Moody’s expects inflation to accelerate to 18% by year’s end, before falling to an average of 12.5% in 2017 (based on the recent 2 percentage point hike in the central bank’s policy rate to 14%).
“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.
“States and local governments will benefit from the naira depreciation, offsetting the negative impact on oil production from the recent attacks in the Niger Delta. Moody’s expects authorities to reduce spending if revenues underperform.”
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