Nigeria’s central bank still lacks the foreign exchange to clear the backlog of demand, and the country’s high interest payment to revenue ratio weighs on its sovereign credit rating, Fitch has said. Nigeria has thus far cleared just $2billion of a backlog of about $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.
But Gaimin Nonyane, director of Middle East and Africa sovereigns with Fitch, 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. “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 in a webinar. Nonyane said Fitch expected the Naira to end the year just above 900 against the dollar.
The official rate is currently at 846 to the dollar, but has wildly fluctuated, going past 1,299 this month, according to LSEG data. She added there had been some backtracking in fuel subsidy elimination. 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.
Meanwhile prosecutors on Thursday added 14 new criminal charges, including forgery, against former central bank governor Godwin Emefiele in the most high-profile corruption case under President Bola Tinubu. Emefiele, who presided over the affairs of the central bank for nine years, resigned last year after he was arrested and spent five months in detention. Prosecutors told a judge in Abuja that the new charges against Emefiele were linked to forgery, conspiracy to commit forgery and felony, procurement fraud and criminal breach of trust. Emefiele was being tried on six charges of procurement fraud after he was freed on $300,000 bail in November. He denied the charges. He will be indicted on the amended charges on Friday, when he is also expected to enter a plea. Emefiele was suspended by Tinubu on June 9 and arrested the next day by the Department of State Service. He then resigned in August, paving the way for the appointment of Olayemi Cardoso as the new central bank governor in September.
