Ratings agency Moody’s published a statement last week on Nigeria’s rebased GDP of $510 billion, which it estimates would surge to $4.5 trillion by 2050.
Moody’s which has a Ba3 stable rating on Nigeria said that the rebasing exercise was supportive of assessing the nations sovereign credit profile, although it does not change the government’s nominal stock of outstanding debt, nor its revenue generation capacity to service that debt.
“With a population of 170 million and oil reserves estimated at around 37.2 trillion barrels (or roughly 28 percent of total African reserves), Nigeria is likely to number among the world’s 15 largest economies by 2050 when GDP is projected to exceed $4.5 trillion in purchasing power parity terms,” said Aurelien Mali, VP-Senior Analyst, Moody’s.
“From a credit standpoint, the revised GDP estimates allow a better understanding of the Nigerian economy and its underlying resilience.”
The rebasing of Nigeria’s GDP follows similar rebasing exercises by more than a dozen other African countries over the past decade, resulting in a range of revisions of national output, from an 11 percent reduction in the case of Botswana (A2 stable) to a 66 percent increase in the case of the Democratic Republic of the Congo (B3 stable).
Moody’s notes that in Nigeria’s case, the GDP revision is more spectacular as it means the country has now overtaken South Africa to become the largest economy in Africa, with its ranking among global economies jumping from 36th to 28th, with an economy almost as large as that of the Netherlands.
Furthermore, 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.
The revision mostly impacted the services sector, which is now estimated to be 240 percent larger than previously thought, compared with agriculture (20 percent increase on previous estimate) and industry (34 percent).
It also revealed that Nigeria’s economy is more diverse than originally accounted for.
New industries are now recognized, including: food, beverages and tobacco, chemicals, chemical products and pharmaceutical products, arts, and entertainment and recreation.
Consequently, agriculture’s share of GDP in 2013 shrank from 35 percent to 22 percent, and industry’s portion fell from 36 percent to 26 percent, while services expanded from 29 percent to 52 percent of GDP.
Within services, the share of telecommunications and information services increased tenfold, from 0.86 percent to 8.69 percent of GDP.
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, according to Moody’s.