Naira Expected to Settle at 1,450/$ by December- Fitch Ratings

International credit rating agency Fitch Ratings has projected that the Nigerian currency, the naira, will end the year at 1,450 to the US dollar. This was disclosed by Gaimin Nonyane, Director of Sovereigns at Fitch Ratings, during a post-sovereign rating webinar on Tuesday focused on Nigeria and Egypt.

In May, Fitch revised Nigeria’s Long-Term Foreign-Currency Issuer Default Rating outlook to Positive from Stable and affirmed the rating at ‘B-‘. This change reflects recent reforms in Nigeria’s foreign exchange market, oil industry, and monetary policy over the past year.

Commenting on the naira’s volatility since its floatation in June 2023, Nonyane said, “The naira is still in price discovery mode. We expect a lot of volatility in the near term. However, multilateral donor funding anticipated in Q3 and improved oil receipts should help reduce this volatility. We project the naira will average about 1,200 per dollar this year and end the year around 1,450 per dollar. Next year, we see a gradual depreciation, largely depending on the momentum of foreign exchange reforms.”

Regarding a potential upgrade for Nigeria, Nonyane highlighted the need for a sustainable recovery in the Central Bank of Nigeria’s foreign exchange position, sustained current account surpluses, reduced inflation, and greater stability in the foreign exchange market. Additionally, stronger domestic non-oil revenue mobilization is crucial, as Nigeria’s low tax revenue base contributes to a high interest-to-revenue ratio of 38%, significantly above the B rating median.

Fitch Ratings also anticipates a recovery in the oil sector. “We expect an increase in oil refining capacity as the Dangote plant ramps up. The PMS is expected to come on stream later this year or early next year, reducing transport costs and refined oil imports, which should ease foreign exchange demands,” Nonyane added.

On Nigeria’s foreign reserves, Nonyane noted a decline from $34 billion in March to around $32.7 billion, with recent gains from oil receipts offset by debt repayments. “We project foreign exchange reserves to rise modestly by year-end due to recovering oil receipts, multilateral funding, and potential commercial borrowing. This would equate to about 4.2 months of current external payments,” she said. However, more than 30% of these reserves are from bank swaps, highlighting an external risk.

Nonyane also pointed out the expected increase in external debt servicing, rising by $4.8 billion in 2024 and a further $5.2 billion in 2025, including the $1.1 billion Eurobond due in November 2025.

Regarding multilateral funding, Nigeria’s Finance Minister, Wale Edun, mentioned on Channels Television’s Sunday Politics program that the World Bank board is expected to consider a $2.25 billion package for Nigeria in the coming weeks. This funding, largely in the form of Development Policy Operation, is seen as recognition of Nigeria’s economic stabilization efforts and will be available almost immediately after the board’s approval.