Fitch Ratings, in its recent evaluation, has upheld Nigeria’s long-term foreign-currency issuer default rating at ‘B-‘ with a stable outlook.
The rating agency acknowledged several strengths in Nigeria’s economic landscape, including its significant economy, a well-developed and liquid domestic debt market, and substantial reserves of oil and gas resources.
These factors, coupled with the commitment of the Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, to enhance the apex bank’s policies for the betterment of the Nigerian people, have contributed to the stable outlook.
However, Fitch expressed notable concerns about certain challenges that could potentially impact the nation’s economic stability.
Weak governance practices, coupled with structurally low non-oil revenue, have been identified as key constraints. The heavy reliance on oil exports, security challenges, and persistently high inflation rates are additional factors hindering Nigeria’s economic growth.
Furthermore, the limited foreign exchange reserves and ongoing weaknesses in the exchange-rate framework have raised concerns among analysts.
The rating agency also highlighted the efforts of the Nigerian government to implement reforms, particularly in the exchange rate market. Positive strides were initially observed, but recent developments, such as reduced price discovery in the foreign exchange market, have raised doubts about the sustainability of these reforms.
The widening gap between official and parallel exchange rates, despite initiatives by the CBN to address the issue, remains a cause for concern.
One of the significant issues noted by Fitch is the weaker-than-anticipated net foreign-exchange position of the CBN.
The central bank’s gross FX reserves dropped to $33.2 billion in September from $37.1 billion at the end of 2022, highlighting the need for careful management of foreign exchange resources.
Fitch pointed out discrepancies in the CBN’s financial statements, indicating uncertainty about the actual net foreign exchange position. Additionally, a lack of transparency surrounding approximately $32 billion in FX forwards, over-the-counter (OTC) futures, and currency swaps has led to uncertainties about the scale of domestic bank swaps with the CBN.
In light of these challenges, Fitch’s assessment underscores the importance of continued reforms and increased transparency in Nigeria’s economic policies.
Addressing these concerns is crucial for fostering investor confidence, stimulating economic growth, and ensuring the long-term stability of the nation’s economy.
The Nigerian government and financial institutions are urged to work collaboratively to implement necessary reforms, enhance transparency, and strengthen the country’s economic foundation, thereby paving the way for sustained prosperity and development.
