Connect with us

Business

Nigeria’s weak external reserves are a concern – Fitch Ratings

Published

on

Nigeria’s weak external reserves, as disclosed by CBN’s recent data, is a concern as it highlights external risk and policy challenges, Fitch Ratings has said.

According to analysisan   by the credit ratings firm, Nigeria’s weak net international reserve position underlines Nigeria’s external vulnerabilities.

This vulnerability is due to recent setbacks in reform efforts and constraints on reserve holdings.

Fitch Ratings has raised concerns about the recent financial disclosure by the Central Bank of Nigeria.

The rating agency says that the recent publication by the Apex Bank shows a weaker-than-expected net reserve position.

Recall that CBN had disclosed that it owes JP Morgan and Goldman Sachs a combined sum of $7.5 billion as of the financial year ended December 2022. Also included as part of its liabilities is another $6.3 billion owed in foreign currency forwards.

Fitch welcomed the increased transparency by the apex bank, which released its audited financial statements for the first time in seven years.

However, it noted that “important gaps remain, preventing a reliable assessment of the net reserve position”.

The rating agency had affirmed Nigeria’s rating at ‘B-’ with a Stable Outlook in May, disclosing that the country’s external finances were a concern.

Fitch also sees the appointment of new Minister of Finance, Wale Edun as “generally supportive of reform”.

Fitch also noted that despite CBN making partial progress in clearing its backlog of unsettled foreign exchange (which further highlights ongoing Fx shortages), its weaker foreign reserve position could affect the pace of exchange-rate liberalization through more constrained FX supply and the potential to weigh on investor sentiment.

It also highlighted that Nigeria’s gross foreign reserves fell by $ 3 billion in January-August 2023, reaching $34 billion.

This represents approximately 4.1 months of current external payments, emphasizing the need for careful management of external challenges.

Trending