AN international financial rating agency has described Nigeria’s response to the global slump in oil prices as not being sufficient to tackle the pressures occasioned by the oil shock.
Fitch in a statement in London said, “The Nigerian authorities’ recent economic policy announcements show the response to the oil price shock is coalescing around state-led development to boost economic growth and import substitution to blunt the effects of declining oil receipts.
The Federal Government’s expansionary 2016 budget envisages spending of N6tn ($30bn), up from N4.6tn in the 2015 budget, including a 30 per cent increase in capital spending.
The government aims to finance additional spending through revenue-side reforms, including improved tax collection and public finance management and by increasing external financing.
The fall in oil prices below the $38 per barrel level assumed in the 2016 budget has increased the need for external financing. And the government announced recently that it was looking to the World Bank and African Development Bank for additional lending and exploring a Eurobond issuance in the first quarter.
The Central Bank of Nigeria had taken a large role in implementing economic policy, Fitch noted that all the CBN policies present downside risks to Nigeria’s sovereign credit profile, although there are various mitigating factors: increased borrowing and higher interest payments will add to pressure on the fiscal position.
“But public debt is low, and the government is unlikely to fully execute its spending plans. Capital expenditure, for example, has constituted only about 20 per cent of the total Federal Government spending in recent years and is estimated to have dropped to about 13 per cent for 2015.”
According to the global rating agency, under-spending by the country will reduce the negative impact on the public finances and boost growth.
The Federal Government has indicated that it will use low oil prices to begin phasing out fuel subsidy in 2016, which will partly contain the deterioration in the public finances.