Nigeria’s current economic struggles look set to continue if President Muhammadu Buhari wins a second term in office, the multinational banking and financial services company, HSBC, has said.
The company stated this in a report by its Global Research unit, entitled, “Nigeria, papering over the cracks”, obtained by Saturday Telegraph yesterday. According to the financial institution, although President Buhari’s “approval ratings sit near alltime lows, a development, it said, “largely reflects the impact of Nigeria’s painful recession in 2016-17 and the sustained economic hardship that has accompanied his presidency, including rapidly rising joblessness, and poverty,” the President will once again lead the APC into the 2019 elections. It, however, stated: “A second term for Mr Buhari raises the risk of limited economic progress and further fiscal deterioration, prolonging the stagnation of his first term, particularly if there is no move towards completing reform of the exchange rate system or fiscal adjustments that diversify government revenues away from oil.”
The multinational banking group, which is Europe’s largest by total assets, noted that while higher oil prices have brightened Nigeria’s macro outlook, boosting export earnings, improving the supply of foreign exchange, and supporting naira stability, the Buhari administration was yet to address the economy’s structural shortcomings. Specifically, it said: “Economic growth remains sluggish and reliant on the rebound in oil output while the non-oil economy, which accounts for about 90 per cent of GDP, continues to languish with many service sectors still mired in contraction.
Joblessness continues to rise, up almost three-fold in three years to 19 per cent in Q3 2017, pushing the number in poverty to 87 million. “Meanwhile, current account improvements may have pivoted on higher oil prices, but they also derive from on-going import restrictions and limited FX access for many sectors of the economy.
All told, we see growth capped at about 2.5 per cent over the next two years – a welcome recovery from the 2016 contraction, but less than half the rate of the previous cycle.” It further stated that in addition to failing to address the country’s ongoing reliance on oil revenues and the issue of inadequate nonoil tax collection, the administration was also grappling with the challenge of having a large share of its budget directed to debt service.
The company noted that while the Federal Government’s debt management strategy of issuing external debt to redeem more expensive short-term government securities is helping reduce debt service costs in the near term,it “exposes the fiscal position to exchange rate risk in the event of a future decline in oil prices and naira devaluation.” In addition, it stated that high oil prices has not translated into nonoil growth, adding that: “Nigeria’s reliance on fuel imports means rising international oil prices are pushing up the cost of fuel subsidies, estimated by the Petroleum Products Pricing Regulatory Agency (PPPRA) at USD250m in May alone.”
Besides, HSBC projected :” Oil prices at current levels therefore suggest a fuel subsidy that could total USD1.5bn in H2 2018, and about USD2.5bn for the year as a whole, which would equate to almost 20 per cent of last year’s gross oil revenue.” It, however, stated that while the, “polls look set to be a closely contested affair” and the, “political environment favours a return to power for the PDP, yet the opposition remains weak and fragmented, and has yet to declare its presidential candidate.” Senior Special Assistant on Media and Publicity to the President, Mallam Garba Shehu, declined comments on the report but referred our correspondent to the Chief Economic Adviser to the President. However, the referral could not be reached as at the time of filing this report.