GDP rebasing sheds more light on Nigeria’s sovereign credit profile – Moody

Moody’s Investors Service has said that Nigeria’s revised gross domestic product (GDP) estimate has shed more light on the country’s sovereign credit profile, adding, however, that this estimate does not change her debt service capacity.

The firm notes that the revised estimate announced recently by National Bureau of Statistics (NBS) is aimed to give a more up-to-date picture of the economy’s size and structure which, until now, were calculated with 1990 prices and an older standard of industrial classification.

In a statement from the firm made available to BusinessDay, Kirsten Knight, the VP, communications strategist/rating communications, points out that “while the GDP revision is supportive of assessing the sovereign’s credit profile, it does not change the government’s nominal stock of outstanding debt, nor its revenue generation capacity to service that debt”.

Knight noted that updating Nigeria’s base year from 1990 to 2010 caused nominal GDP for 2013 to rise 80 percent to $510 billion from $283 billion, adding that this follows GDP rebasing exercises by more than a dozen other African countries over the past decade or so.

“This has resulted in a range of revisions of national output from an 11 percent reduction in the case of Botswana to a 66 percent increase in the case of the Democratic Republic of the Congo; as such, the exercise in Nigeria should not come as a surprise as data quality and completeness in the region continue to improve, albeit starting from a low base”, he said.

Analysing the revised GDP estimate, Knight said that, from a credit standpoint, it allows a better understanding of the Nigerian economy and its underlying resilience, pointing out that the country is richer and more diversified than previously presented with its GDP per capita for 2012 rising to $2,689 (ahead of the Philippines and near to Morocco) from $1,555 (similar to India and Ghana).

“Further, the rebasing sees an improvement in several key credit ratios, including debt to GDP, which has declined from 19 percent to 11 percent for 2012, and interest payments to GDP”, he said.

Continuing, he said, “However, other key credit metrics are negatively affected. Fiscal revenues relative to GDP for 2013 have decreased from an estimated 25 percent to 14 percent. The rebasing also means foreign exchange reserves relative to GDP are now far smaller, compounding the credit-negative impact of the depletion of the Excess Crude Account (ECA) over the last 18 months due to below-budgeted oil production to the tune of 600,000 barrels per day.

“Moreover, the GDP revision does not change the ratio of interest payments to revenues—a direct measure of the government’s debt burden serviceability. Rebasing GDP does not change the government’s revenue generation capacity, but it does highlight the extent of the informal sector and the challenge Nigeria faces to expand tax coverage of the thriving, non-oil economy. Fiscal revenues relative to GDP around 14 percent are similar to Bangladesh, Guatemala, Pakistan and the Philippines, which rank the lowest among Moody’s rated universe in this regard”.