Fitch Ratings has raised concerns about Nigeria's central bank still lacking the necessary foreign exchange to address the substantial backlog of demand, resulting in a negative impact on the country's sovereign credit rating.
According to Fitch, Africa's largest economy has managed to clear only $2 billion of a $7 billion forex forwards backlog, initially disclosed after President Bola Tinubu assumed office last year.
President Tinubu's swift implementation of fiscal reforms, such as reducing petrol subsidies and loosening controls on the naira, aimed to narrow the gap between official and parallel exchange rates.
However, Gaimin Nonyane, Fitch's director of Middle East and Africa sovereigns, highlighted persistent foreign exchange shortages in Nigeria, placing pressure on the naira, with a current 30% gap between official and parallel rates.
In a webinar, Nonyane expressed skepticism about the central bank's capacity to clear the forex backlog and meet extensive external financing needs in the private sector, projecting the naira to end the year slightly above 900 against the dollar.
Despite the official rate currently standing at 846 to the dollar, fluctuations have been observed, surpassing 1,299 this month, according to LSEG data.
Nonyane also noted some retracement in fuel subsidy elimination, despite Tinubu allowing prices to triple in May.
The director highlighted that naira pump prices have remained unchanged since July, despite global price fluctuations and significant naira weakness.
Fitch's head of Middle East and Africa sovereigns, Toby Iles, raised concerns about Nigeria's interest payments to revenue ratio, exceeding 40%, four times the median for B-rated sovereigns.
This high ratio is identified as a key weakness impacting Nigeria's credit rating. Fitch currently rates Nigeria at B- with a stable outlook.
Iles pointed out a broader trend across Africa, indicating that interest-to-revenue ratios have more than doubled since 2014 due to increased borrowing and global interest rate hikes, leading to higher costs.
He expects this ratio to continue rising across African sovereigns in the future.