Fitch warns of persistent forex shortages in Nigeria: summary

What we know

• American credit rating agency, Fitch has said that Africa's largest economy, Nigeria has only managed to clear $2 billion of a significant backlog totalling $7 billion in forex forwards
• Fitch reports that Nigeria's central bank continues to grapple with a shortage of foreign exchange, hindering its ability to address a substantial backlog of demand.
• The country's sovereign credit rating is under strain due to a persistently high interest payment-to-revenue ratio, raising concerns about its economic stability.
• Since assuming office, President Bola Tinubu has intervened by adopting crucial fiscal reforms in response to the economic challenges, taking decisive actions such as reducing petrol subsidies and easing controls on the naira. These measures were aimed at narrowing the gap between official and parallel exchange rates, demonstrating the administration's commitment to addressing economic imbalances.
• However, Fitch’s assessment points to the high interest payment-to-revenue ratio, further exacerbating Nigeria's economic challenges and contributing to concerns about its sovereign credit rating.
• Fitch further anticipates the naira to conclude the year slightly above 900 against the dollar from the current official rate of 846 to the dollar

What they said

The Director of Middle East and Africa sovereigns with Fitch, Gaimin Nonyane, has raised concerns about the persistent foreign exchange shortages in Nigeria, predicting ongoing pressure on the national currency, the naira. Nonyane said there exists a substantial 30% gap between the official and parallel exchange rates, highlighting the challenges faced by the central bank. "We think that the central bank is still very short of the amount it needs to be able to clear the foreign exchange backlog and also meet the extremely large external financing by the private sectors," Nonyane is quoted by Reuters. She added that despite President Tinubu's decision to triple fuel prices in May, there has been a notable reversal in the elimination of fuel subsidies. Thus, pump prices in naira have remained unchanged since July, despite global price fluctuations and considerable weakness in the national currency.