January 21, (THEWILL) – Credit ratings agency, Fitch, has said that the Central Bank of Nigeria (CBN) continues to face a shortage of foreign exchange to clear the forex backlog.
The country’s high debt-service-to-revenue ratio is also contributing to a challenging sovereign credit rating.
Gaimin Nonyane, Fitch’s Director of Middle East and Africa Sovereigns, expressed that the ongoing foreign exchange shortages in Nigeria would exert pressure on the naira. Currently, there exists a 30% disparity between the official and parallel exchange rates.
She said, “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 and Toby Iles, Fitch’s Head of Middle East and Africa Sovereigns, cautioned that Nigeria’s interest payments to revenue ratio, surpassing 40%, poses a significant weakness for its credit rating four times higher than the median for B-rated sovereigns.
Iles pointed out that interest-to-revenue ratios across Africa have more than doubled since 2014, driven by heightened borrowing and increased costs due to global interest rate hikes.
The CBN has begun clearing a backlog of forex forwards to companies looking to repatriate the cash abroad. The Governor of the apex bank estimates the total backlog in the range of $7 billion.
The apex bank stated recently it has cleared around $2 billion of the backlog in the past three months and would ensure there is liquidity in the forex market.
Fitch rated Nigeria at B- with a stable outlook despite a cornucopia of macroeconomic malaise- record-level inflation, wobbling naira, and limping crude oil production.
Nigeria’s debt levels have been a cause of concern to many in recent times.
In the first quarter of 2023, the debt service to revenue rose to 183%. Nigeria’s total public debt as of Q3, 2023 stands at N87.9 trillion.
In the 2024 budget proposal presented to the National Assembly, the federal government intends to borrow N7.83 trillion to address a budget deficit of N9.18 trillion. Despite this borrowing plan, there is a concerted effort by the federal government to diminish reliance on debts and increase revenue through the Committee on fiscal policy and Tax Reforms.