Fitch, a prominent global credit rating agency, has highlighted that the Central Bank of Nigeria (CBN) continues to grapple with insufficient foreign exchange (forex) reserves to address the existing backlog of demand within the country. The dire situation was brought to light by Gaimin Nonyane, Director of Middle East and Africa Sovereigns at Fitch, who also cautioned about Nigeria’s vulnerability due to a high interest payment to revenue ratio.
“Nigeria’s central bank still lacks the foreign exchange to clear the backlog of demand, and the country’s high interest payment to revenue ratio weighs on its sovereign credit rating,” remarked Fitch during the webinar.
President Bola Tinubu’s administration has managed to clear $2 billion of a backlog amounting to $7 billion in forex forwards since taking office last year. However, Nonyane emphasized that the forex shortages persist, exerting pressure on the naira. Currently, there exists a significant 30 percent gap between the official and parallel exchange rates.
“We think that the central bank is still very well 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,” stated Nonyane.
Fitch anticipates that the naira will close the year just above 900 against the dollar. While the official exchange rate stands at N846 to the dollar, the currency has experienced volatile fluctuations, surpassing N1,299.
The challenges faced by the CBN in addressing the forex backlog and managing the interest payment to revenue ratio pose significant hurdles to Nigeria’s sovereign credit rating. As the situation unfolds, stakeholders will closely monitor developments and potential interventions by the central bank to stabilize the forex landscape.