Fitch Revises Nigeria’s Outlook to Stable from Negative
Fitch, one of the global credit ratings agencies, recently revised Nigeria’s outlook to stable from positive. This reflects an improvement in the domestic economy following the gradual phasing out of the lockdown restrictions and reduced external pressures. The positive revision to Nigeria’s outlook is expected to improve the country’s risk perception, thus increasing its ability to borrow from the capital market at lower costs. It will also boost investor confidence in the Nigerian economy, which could spark renewed interest from Foreign Portfolio Investors (FPI). FPI inflows fell sharply by 91.06% to $385.32mn in Q2’20 from $4.31bn in Q1’20. The major risks however include the continued fall in oil prices, difficulty in repatriating funds due to dollar scarcity, resurgence in COVID infections, which could lead to a precision lockdown and halt international travels and trading activities.
The Never Ending Challenges of Food Security in Nigeria
The President has directed the CBN to halt forex sales to food and fertilizer importers. This is in a bid to ration forex following the crash in oil prices and the resulting decline in foreign exchange earnings. This at a time of food crisis in some of the food producing states raise concerns about food security in Nigeria. Addressing the access, affordability and nutritional aspects of food security would involve a deliberate effort by policymakers to set aside contingency funds and engage key stakeholders. The Ethiopian model offers several learning points for Nigeria to emulate, as this would aid food consumption and reduce the national poverty level (currently at 40%).
The Paradox of Thrift and the Drag on the Nigerian Economy
Research has shown that precautionary savings tend to increase during economic downturns due to rising uncertainties. However, some economists opined that increased savings would lead to a reduction in aggregate demand, which could slow the pace of economic recovery. The IMF forecasts a 5.4% contraction in the Nigerian economy in 2020. Increased government spending as well as the implementation of crucial economic reforms are needed to facilitate economic recovery.
In this edition of the FDC Bi-Monthly publication, the FDC Think-Tank analyzes these issues and their implications on businesses and the economy at large.
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