Notwithstanding threats posed by the Islamist insurgency in the north, clashes between Fulani herdsmen and pastoralists in the Middle Belt region as well as growing unrest in the South which have continued to threaten the country’s existence, Nigeria will survive its challenges over the next decade, the Fitch Solutions Group, an affiliate of global ratings agency, Fitch, has stated.
The UK-based organisation stated this in a report titled, “Nigeria Country Risk Report – Q1- 2022,” which also included a 10-year forecast to 2030.
“Rising population levels, high unemployment and competition for diminishing resources in a period of slower economic growth will exacerbate ethnic and religious grievances in Nigeria over the next decade, and the country will continue to face security challenges on three major fronts.
“Our core view is that the Nigerian state will survive these interlocking challenges, although they will weigh on growth by deterring investment and impeding private consumption.
There is a downside risk, however, that ethno-religious divides will eventually lead to the break-up of the state. The next several years will be a major test for Nigeria, as the slow recovery following the Covid-19 pandemic deepens poverty and further erodes the government’s ability to provide public goods. A weakened state may struggle to unite the diverse country, which has Africa’s largest population.
“Nigeria already faces three clear security threats: the Islamist insurgency in the north, clashes between Fulani herdsmen and pastoralists in the Middle Belt region, and growing unrest in the south. Even so, our core view remains that the federal republic will still exist at the end of the decade. Democracy will become increasingly entrenched, and social unrest, while likely to increase, will remain contained to the sub-regional level,” it predicted.
The report predicted that Nigeria’s Gross Domestic Product (GDP) would grow by a modest 2.1 per cent in 2021, after contracting by an estimated 1.9 per cent; and accelerate to 2.8 per cent in 2022 on the back of stronger household spending, and increases in fixed investment and oil exports.
In addition, Fitch, in the report, disclosed that it had revised its forecast for Nigeria’s 2021 budget deficit to 4.8 per cent of GDP, from 4.2 per cent, following the publication of official data indicating weaker federal government revenue than it had previously anticipated. It anticipated that the country’s current account deficit would narrow slightly to 1.9 per cent of GDP in 2022, largely as a result of a further narrowing of the trade deficit.
Furthermore, the research firm predicted that in 2022, strengthening economic growth would provide the Central Bank of Nigeria (CBN) room to shift its focus to containing inflation and hiking the Monetary Policy Rate (MPR) by 100 basis points to 12.50 per cent.
It expressed doubt over the ability of the Nigerian government to implement major economic reforms ahead of the 2023 general election, saying campaigns ahead of political parties’ election primaries would be the focus of attention between now and 2022.
The federal government had disclosed a plan to remove subsidy on petrol, which had been described as a major drain and waste on the economy, by May next year. The Petroleum Industry Act (PIA) recommended the removal of the controversial fuel subsidy, even as the World Bank and some other institutions had warned about the dire consequence of retaining the policy.
But Fitch, in the report, pointed out that, “Campaigning ahead of party primaries will shift political attention away from reforms in fourth quarter of 2021 and 2022.”
It noted that although the President Muhammadu Buhari administration had made notable progress in 2021, particularly as regards simplifying the exchange rate regime and passing landmark oil sector reforms, further significant progress was unlikely this quarter and in 2022.
This is because politicians from the two major political parties – the ruling All Progressives Congress (APC) and the main opposition Peoples Democratic Party (PDP) – would focus on campaigning and mobilising support ahead of their primary elections, likely to be held in the second half of 2022, the report said.
The Fitch report stated, “In this context, progress on politically unpopular reforms, such the reduction of fuel and electricity subsidies, is unlikely in the coming quarters, and the resulting continued pressure on public finances will contribute to Nigeria posting large fiscal deficits in 2021 and 2022 (we forecast deficits of 4.8% and 4.5% of GDP respectively).