GCR: Nigeria reforms to yield mildly positive outcomes in 2025

Nigeria is on the brink of change as ongoing reforms are expected to produce mildly positive outcomes by 2025, according to ratings agency GCR Ratings. These reforms aim to address key factors such as lowering inflationary pressures, stabilizing foreign exchange rates, and boosting GDP growth. In its recent Nigeria Macroeconomic update, GCR Ratings highlighted that while these reforms may not immediately impact the country's risk assessment, they hold promises for the future. Timchang Gwatau, Sector Head for Non-bank Financial Institutions in Nigeria at GCR Ratings, shared insights on the implications of these reforms during a CNBC Africa interview. The country risk assessment is a critical factor for businesses operating in Nigeria, as it evaluates the various risks that can affect them from a credit perspective. Factors such as wealth levels, inflation, human development indices, and ease of doing business, all play a role in determining the country risk assessment score. Gwatau emphasized that the ongoing reforms in Nigeria have led to some unfavorable consequences in certain sectors, citing examples in the telecoms and banking industries. These sectors experienced challenges such as high leverage ratios, negative shareholder equity, and declining core capital ratios due to policy decisions that impacted their operations. The country's overall economic landscape has been affected by the reforms, with consumers facing high inflationary pressures and manufacturers grappling with high inventory levels. While the recent GDP figures may not be as promising as expected, it is essential to understand the broader implications of the reforms on Nigeria's economic outlook. GCR Ratings currently rates Nigeria's country risk assessment at 3.5, indicating a relatively low score compared to other African countries. This low score reflects the existing pressures within the Nigerian economy and serves as a forward-looking indicator for the impact of ongoing reforms. While immediate changes may not be visible in the country risk assessment, Gwatau highlights the potential for a more positive assessment in the longer term as the reforms take effect. Regarding the sovereign risk assessment and local debt ratings, Gwatau clarifies that they are distinct from the country risk assessment. Sovereign risk focuses on the creditworthiness of the government and its ability to meet financial obligations. Despite some fiscal adjustments by the government, the full impact of the ongoing reforms on the fiscal position has yet to be realized. This underscores the need for further monitoring and evaluation to gauge the overall effectiveness of the reforms. In terms of monetary policy direction, recent changes in GDP and CPI calculations have raised questions about the accuracy and comparability of economic data. Gwatau suggests that while these adjustments may provide a more realistic reflection of economic realities, they could complicate the assessment of policy outcomes. Clarifying the methodology behind these changes and ensuring transparency in data reporting will be crucial for accurately interpreting economic trends moving forward. In conclusion, Nigeria's journey towards economic reform is a complex process with both challenges and opportunities. The path to achieving sustainable growth and stability will require continued vigilance, adaptability, and collaboration between the government, businesses, and financial institutions. As Nigeria navigates through these reforms, the ultimate goal remains to create a more resilient and prosperous economy for its citizens.