Fitch Ratings has affirmed Nigeria’s long-term foreign currency credit default outlook at B, citing recent policies by President Tinubu as responsible for the stable outlook.
It also raised concerns over the proposed $10 billion forex loan which the government plans to use to offset forex backlogs and inject liquidity into the system.
This is from its latest rating outlook commentary on the Nigerian economy. The global credit ratings agency noted that reforms such as fuel subsidy removal and the new exchange rate framework were responsible for the stable outlook.
On the strengths and weaknesses of the Nigeria economy, the agency noted “Nigeria’s ‘B-‘rating is supported by a large economy, a developed and liquid domestic debt market, and large oil and gas reserves.
The rating is constrained by weak governance, structurally very low non-oil revenue, high hydrocarbon dependence, security challenges, high inflation, low net FX reserves, and ongoing weakness in the exchange-rate framework.”
Fitch raised concerns about the recent government announcement to secure $10 billion in foreign exchange, highlighting the absence of specific information, such as whether this amount encompasses World Bank budget support loans totaling $1.5 billion.
It stated, “we forecast a broadly flat current account surplus, averaging 0.5 per cent of Gross Domestic Product (GDP) in 2023-2024. There is a lack of detail on a recent government announcement to raise $10 billion of forex, including whether this includes World Bank budget support loans of $1.5 billion.
Following the sharp depreciation this year, Fitch assumes exchange-rate adjustments proceed more gradually in subsequent years.”
However, it said signs of backtracking on reforms such as “a lower degree of price discovery in the foreign exchange (forex) market than in late June” and recent revelation from the nation’s apex bank which suggests that foreign reserve is significantly lower than publicly acknowledged.
The agency also noted that the country’s public debt, excluding Central Bank of Nigeria loans, has a relatively extended average maturity of 9.7 years.
Beyond that, the agency said the scarcity of foreign exchange is hindering economic activities in the country and impeding the flow of foreign capital and the CBN’s net foreign exchange position is lower than understood according to its financial statement published in August.
Going further, the agency explained that Nigeria’s growth in 2024 will be spurred by an increase in crude oil production, a reduction in budget deficit freeing resources for capital expenditure, non-oil revenue growth, etc. But it highlighted Nigeria’s macro-economic challenges to include; high inflation which it projects to drop to 21.1% in 2024, and a high interest rate.
