By Adedapo Adesanya
Credits rating firm, Fitch Ratings, has said the Central Bank of Nigeria (CBN) lacks the capacity to clear the backlog of foreign exchange (FX), adding that the country’s high-interest payment to revenue ratio weighs on its sovereign credit rating.
This is coming after the CBN said it would continue working towards settling all FX obligations with just $2 billion settled so far of the almost $10 billion across several sectors.
According to Ms Gaimin Nonyane, Fitch’s Director of Middle East and Africa sovereigns, forex shortages in Nigeria will keep pressure on the Naira, where there is currently a 30 per cent gap between the official and parallel 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,” Ms Nonyane said in a webinar.
She acknowledged some reforms taken by President Bola Tinubu including a removal of fuel subsidies and the floating of the Naira to narrow the gap between official and parallel rates.
Ms Nonyane said Fitch expects the Naira to end the year just above N900 against the US Dollar.
The official rate closed at N902 to the Dollar on Thursday but traded above N1,300 in other unregulated markets – the Peer-to-Peer (P2P) and black markets.
However, both policies have not been able to solve the issues, adding that there has been some backtracking in fuel subsidy elimination.
According to her, Nigeria’s petrol pump prices have not moved since July despite global price fluctuations and significant Naira weakness.
On his part, Mr 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 per cent was a key weakness for its credit rating.
Fitch currently rates Nigeria at B- with a stable outlook and with the ratio of interest payments to revenue at that level, this is four times the median (~10 per cent) for B-rated sovereigns
Mr Iles said interest-to-revenue ratios in Africa 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,” Mr Iles said.
Modupe Gbadeyanka