Credit rating agency Fitch has said that the Central Bank of Nigeria (CBN) still lacks the foreign exchange to clear the backlog of demand.
It noted that the country's high-interest payment to revenue
ratio weighs on its sovereign credit rating.
Gaimin Nonyane, director of Middle East and Africa
sovereigns with Fitch, in a webinar on Thursday, said foreign exchange
shortages in Nigeria would keep pressure on the naira, where there is currently
a 30% gap between the official and parallel rates.
According to Reuters, Nonyane said the CBN is short of the
amount needed to clear the foreign exchange backlog and also meet the extremely
large financing by private sectors.
"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," Nonyane said.
Nonyane said Fitch expected the naira to end the year just
above 900 against the dollar.
The official rate is currently at N846 to the dollar but has
wildly fluctuated, going past N1,299 this month, according to LSEG data.
She added there had been some backtracking in fuel subsidy
elimination.
President Bola Tinubu allowed prices to triple in May, but
naira pump prices have not moved since July despite global price fluctuations
and significant naira weakness.
Nonyane and Toby Iles, Fitch's head of Middle East and
Africa sovereigns, also warned that Nigeria's ratio of interest payments to
revenue at above 40% - four times the median for B-rated sovereigns - was a key
weakness for its credit rating.
Fitch currently rates Nigeria at B- with a stable outlook.
Across Africa, Iles said interest-to-revenue ratios had more
than doubled since 2014 due to increased borrowing coupled with global interest
rate hikes that boosted costs.
"We expect that ratio to continue to rise given the
pass through of rates," Iles said of African sovereigns.
Nigeria has thus far cleared just $2 billion of a backlog of
some $7 billion in forex forwards revealed after President Bola Tinubu took
office last year.
Tinubu took quick action on key fiscal reforms - including
slashing petrol subsidies and loosening controls on the naira to narrow the gap
between official and parallel rates.
the CBN, in its bid to clear the backlog of outstanding
foreign exchange liabilities, said it had paid approximately $2 billion across
various sectors, including manufacturing, aviation, and petroleum.
The bank said it had also cleared up the entire liability of
14 banks and started settlements with foreign airlines.
The CBN Acting Director, Corporate Communications
Department, Mrs. Hakama Sidi Ali, disclosed this in Abuja on Wednesday, January
17, 2024, explaining that the Bank had commissioned an independent forensic
review by a reputable firm. She also disclosed that payment of the forex
backlog for qualified transactions had commenced.
She, however, noted that the review revealed grave
infractions, gross abuse, and significant non-compliance with market
regulations, and appropriate sanctions would be enforced in collaboration with
relevant agencies.
Mrs. Sidi Ali stressed the CBN's resolve to sanitize the
financial services sector and foster trust among all market participants, as
well as internal and external stakeholders, in the Nigerian economy.
Nevertheless, she said the CBN will continue to settle the legitimate foreign
exchange backlog as it has consistently been doing in the last three months.