Fitch: No Rating Impact Despite Scale of Nigeria's GDP Uplift

Mon Apr 7, 2014 10:19am EDT

(The following statement was released by the rating agency) LONDON, April 07 (Fitch) Nigeria's large-scale GDP rebasing has a mixed impact on key sovereign rating metrics, and therefore no automatic implications for Nigeria's BB-/Stable sovereign rating, Fitch Ratings says. It could, however, boost investor sentiment and that is likely to support the sovereign credit profile over the longer term. The GDP uplift affects some key rating metrics positively and some negatively. 2013 per capita GDP rises by 89% to USD2,900 on Fitch's calculations. But it remains below both the 'BB' and 'B' category peer group medians of USD4,528 and USD3,841, respectively. It is also below similarly rated oil exporters Gabon (USD10,688) and Angola (USD 5,703). Per capita GDP ranking relative to other countries is more important in our sovereign rating methodology than the absolute level. Nigeria overtakes just three Fitch-rated sovereigns - Vietnam (B+), Philippines (BBB-) and Bolivia (BB-) - following the uplift. The other main positive impact is on public debt indicators, which are already a rating strength and now look even stronger. 2013 debt-to-GDP drops to 11.6% from 22% and the average deficit-to-GDP ratio is just 1.4% over the past three years (both calculated on a general government basis). However, Nigeria's low non-oil fiscal revenue now looks even lower at just 3.8% of GDP (2013 Fitch estimate). The GDP uplift puts some other key metrics in a poorer light. The 2013 current account surplus shrinks to 4.1% of GDP (and is likely to be overstated given the large errors and omissions in the balance of payments). Foreign direct investment drops to less than 1% of GDP, among the lowest in the region. Broad money - a proxy for financial market development and banking sector penetration - also declines, from one-third of GDP to less than one-fifth of GDP. A number of other developmental indicators included in the UN's Human Development Index - such as education and health outcomes - are unchanged, as are relatively weak World Bank governance and business environment indicators. 2013 real GDP growth was higher than previously estimated, with the Nigerian Bureau of Statistics (NBS) revising its estimate up to 7.4% from 6.9%. However, a lower estimate for 2011 meant that real annual GDP growth was slightly lower for the 2011-2013 rebased period as a whole (6.4%, from 7%), though still well above rating peers. The new series therefore shows more variability in GDP growth despite the more diversified economy revealed in the new national accounts, with a larger services and manufacturing sector (52.3% and 6.8% of GDP, respectively) and a smaller agricultural (22%) and oil sector (14.4%). So the rebasing exercise itself has no rating impact overall. Nevertheless, the results are likely to be credit positive in the longer term as perceptions of Nigeria as an investment destination improve. The rebasing also highlights the importance of data quality, which is taken into account in the rating process. The NBS yesterday released the results of a major overhaul and update of Nigeria's national accounts, including shifting the base year forward by 20 years to 2010. This allows the better capture of a number of economic sectors which have appeared over this period. This uplift raises Nigerian GDP in USD terms in 2013 to USD504bn on Fitch calculations, making it the largest economy in Africa, and the 26th-largest in the world on World Bank calculations. Contact: Richard Fox Senior Director Sovereigns +44 20 3530 1444 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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