Contraction in the Nigerian economy, brought on in part by weaker oil prices, may make it difficult for the government to control its debt, Fitch Ratings said. The ratings agency said Monday from Hong Kong that it cut its growth forecast for Nigeria substantially to reflect continued pressures on the economy during the first half of the year.
“We expect real gross domestic product to contract by 1 percent in 2016, compared with our earlier forecast of a 1.5 percent expansion,” the ratings agency said in its ratings action. “We expect a limited bounce back and forecast a recovery to 2.6 percent next year.”
During a recent meeting with officials from the World Bank and International Monetary Fund, Nigerian Finance Minister Kemi Adeosun said the country was ready to take its place alongside leading global economies.
Oil, however, contributes about 10 percent to the country’s GDP and, with oil prices still about 50 percent below the recent peak, Nigeria’s economy has flirted with recession.
Last week, Moody’s Investors Service said the number of non-performing loans, those for which the borrower is not making payments, is on pace to increase to around 12 percent over the next year, compared with the 5 percent on the books for Nigerian banks as recently as December.
All financial sectors have been affected by lower oil and gas prices, Moody’s said. For Fitch Ratings, the non-oil sector of the Nigeria economy shrank by 0.4 percent for its second-straight decline. Much of the contraction is due to a decline in oil production.
While deficits or offset by low government debt, Fitch said the debt burden is increasing as government revenues decline in proportion of GDP. “An improving situation in the Niger Delta region will prevent further production loss, but levels are not likely to reach first quarter levels this year,” Fitch said. A group calling itself the Niger Delta Avengers emerged earlier this year as one of the more active militant groups waging war on energy interests in the oil-rich Niger Delta region. The NDA accuses the government of Nigerian President Muhammadu Buhari of favouring oil and gas interests over the interests of the people in the Niger Delta and its campaign has been blamed for pushing total Nigerian crude oil production to a 30-year low this year.
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