Nigeria may have received positive international recognition from famous financial ratings firms, yet analysts are worried that its citizens are not living the good life expected of an economically progressive nation. OKECHUKWU NNODIM reports

The recent BB-credit ratings given Nigeria by two renowned international ratings agencies, Fitch Ratings and Standard and Poor’s, have been greeted by varied reactions from analysts and economic players.

 While some describe the development as not surprising, others note that the ratings have not yielded much benefit to the nation’s overall economic performance. They say many Nigerians are yet to feel the impact of a growing economy, despite the stable outlook ratings that the country received from the firms.

S&P had, last Wednesday, upgraded Nigeria’s credit ratings. This, it said, followed the Central Bank of Nigeria’s drive for improved financial stability and the country’s optimism over reforms in the banking and the electricity sectors.

 The ratings agency had raised Nigeria’s long-term international and local currency sovereign credit rating to BB- with a stable outlook, three notches below investment grade, from B+, thus bringing  its view in line with Fitch’s rating.

“(Nigeria’s) external reserve buffers have … been strengthening on the back of high oil prices and strong exports,” S&P said in a statement.

“The government has sustained reform momentum in several key areas, including cutting the fuel subsidy and reforming the power sector, and the authorities have restructured and strengthened the previously troubled banking sector.”

As at Wednesday this week, Nigeria’s FOREX reserves had risen to around $42.9bn, up from around $33bn at the start of the year. The Excess Crude Account, where Nigeria saves money it earns from oil exports over a benchmark prices, contains about $8.4bn, compared with $2bn at the end of 2010.

Still last Monday, Fitch Ratings, another renowned international ratings firm, rated Nigeria BB-. The ratings, however, weren’t surprising to some analysts, as they described it as familiar, especially when the CBN is implementing monetary tightening in the country.

Fellow ratings agency, Moody’s, expanded its coverage to include Nigeria on Wednesday, assigning a Ba3 rating with a stable outlook. Moody’s said it also expanded its coverage to Kenya and Zambia.

Analysts at FBN Capital, an indigenous research and advisory firm, in a report sent to our correspondent, stated that the report which placed Nigeria on BB- with a stable outlook was common.

They said, “Fitch has published its full rating report for Nigeria, and affirmed its foreign-currency long-term sovereign rating of BB- with a stable outlook. Standard and Poor’s, in comparison, has Nigeria one notch lower at B+ although it did revise its outlook from stable to positive in December 2011. The Fitch commentary is familiar and free of surprises.

 ÃƒÂ¢Ã¢â€šÂ¬Ã…“The strengths of the credit remain strong debt and international liquidity indicators, along with robust non-oil Gross Domestic Product growth. The weaknesses are low Gross Domestic Product per head, flawed governance, poor social indicators and numerous constraints on the business environment.”

They noted that Fitch was likely to upgrade the rating if the reform momentum picked up, and downgrade it in the event of a sustained fall in the oil price and an old-style policy response.

According to the analysts, Fitch applied its own methodology to Federal Government finances. They stressed that while the Federal Government published data show oil revenues at the budgeted price and make the necessary adjustments to the ECA, Fitch worked with the actual oil price and treated drawings from the account as spending items within the overall budget.

 ÃƒÂ¢Ã¢â€šÂ¬Ã…“For 2011, for example, the Federal Government deficit amounted to 4.6 per cent of GDP officially, and just 0.2 per cent according to Fitch,” they added.

 ÃƒÂ¢Ã¢â€šÂ¬Ã…“Fitch notes that fiscal policy can be judged on nominal spending: the total (including ECA drawings) soared by close to 50 per cent in 2010 ahead of the elections, increased by just six per cent last year and decreased in H1 2012.”

Fitch estimated gross general government debt (the Federal Government and states combined) at 19.4 per cent of GDP at the end of 2011. It had a net measure of just 4.4 per cent, adjusted for FG’s deposits in the banking system. It appears to assume that AMCON will be self-financing,” the analysts said.

 They said that Fitch’s positive take on the fuel subsidy reduction in January was that it unleashed several audits on the industry, leading to sizeable fiscal savings and a marked fall in merchandise imports in the first half of 2012.

FBN Capital noted that Fitch was guarded about the Petroleum Industry Bill and the Sovereign Wealth Fund, given the strength of vested interests.

Meanwhile other analysts observed that the liquidity tightening of the CBN, which earned Nigeria the BB- and stable outlook ratings, was at odds with the reality of an uncertain global economic environment and the actions of regulatory banks of most emerging markets.

They argued that central banks of most emerging economies pursued more accommodative policies in order to support domestic growth and rebuff the drag of the global economic landscape.

The economists noted that despite the ratings, the living conditions of Nigerians had not yet improved considerably and wondered why the CBN had remained dogged with its monetary tightening regime.

In his reaction, the Chief Executive Officer, Economics Associate, Dr. Ayo Teriba, stated that the policies of Nigeria’s regulatory bank showed that it was mainly concerned about the FOREX market and not the economic growth of Nigeria.

He said, “The monetary tightening measures obviously show that the CBN is mainly concerned about the excess demand of FOREX and not just inflation; for if you hike rates because of excess demand of foreign exchange, what would it do to the growth of the economy?

 ÃƒÂ¢Ã¢â€šÂ¬Ã…“The interest rate hike as a matter of fact, will affect the local output growth and local employment growth negatively. So, rather than tough fiscal tightening, they should ponder on how to use the gains from our oil proceeds to grow or absorb the shock in the foreign exchange.”

The former president, Association of National Accountants of Nigeria, Dr. Samuel Nzekwe, told our correspondent that fiscal tightening at the expense of local industries was meaningless.

He explained that the ratings focused on Nigeria’s long-term foreign and local currency sovereign credit, but stressed that many Nigerians were not comfortable despite the stable outlook recognition from the international agencies.

He said, “The monetary tightening policies of the CBN may get us international recognition, but are we better of as a people? Are manufacturers finding it funny? Is our economy doing greatly? All these are issues that need to be addressed not just international recognition from ratings firms.”

Source: Punch