Fitch affirms Nigeria’s credit rating stable, raises concerns over $10bn forex loan

PUNCH

Fitch Ratings has affirmed Nigeria’s long-term foreign-currency issuer default outlook at ‘B-‘ with a stable outlook.

It said at the weekend that the country’s major strengths are a large economy, a developed and liquid domestic debt market, and large oil and gas reserves.

This affirmation came as the Governor of the Central Bank of Nigeria Olayemi Cardoso, while playing host to former CBN governor, Muhammadu Sanusi II, reiterated his commitment to change the story of the apex bank and make its policies more impactful on Nigerians.

The rating agency, however, noted that the rating was constrained by weak governance, structurally very low non-oil revenue, high hydrocarbon dependence, security challenges, high inflation, low net foreign exchange reserves, and ongoing weakness in the exchange-rate framework.

It observed that Tinubu’s cabinet is supportive of reform which had contributed to the reform of the exchange rate framework much more quickly than it anticipated.

“However, there has recently been some backtracking on reforms, notably a lower degree of price discovery in the FX market than in late June, raising doubt about the strength of this positive momentum.

“In addition, new data on the Central Bank of Nigeria (CBN) suggests its net foreign-exchange position is substantially weaker than we previously understood. These factors are reflected in the stable outlook,” Fitch said.

It added that FX shortages have continued to weigh on economic activity and further FX liberalisation and deter foreign capital.

The CBN in October, lifted the ban on providing FX for imports of 43 items and began this week to clear nearly $6.7 billion of unmet FX forwards.

“However, there has been a renewed widening of the gap between the official and parallel exchange rates since July with a premium of over 30 percent over the official rate. Average daily FX turnover at the official exchange rate window has fallen back to near April 2023 levels (well below pre-pandemic), at $95 million in September,” Fitch stated.