International credit rating agency, Fitch Ratings, has projected that the Nigerian currency, the naira, will end the year at 1,450 to the United States of American dollar.
This was disclosed by the Director, Sovereigns, at Fitch Ratings, Gaimin Nonyane, during a post-sovereign rating webinar on Tuesday focused on Nigeria and Egypt.
Earlier in May, Fitch Ratings revised the Outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating to Positive from Stable, and affirmed the IDR at ‘B-’, on the back of reforms in the foreign exchange market, oil industry and monetary policy over the past one year.
Speaking on the fate of the Naira which has struggled since its floating in June 2023, Nonyane said, “The Naira is still finding its feet. It is still in price discovery mode. So we would expect a lot of volatility in the near term. However, as I just mentioned, there is the expectation of multilateral donor funding coming in Q3 this year in addition to improved oil receipts. So that should help to reduce volatility somewhat by Q3 this year.
“We project that will average about 1200/dollar this year and end the year round 1450/dollar. And in terms of next year, we see a gradual depreciation but it also depends largely on the foreign exchange reforms momentum. So, this is our baseline scenario on the basis that the momentum continues at the current pace.”
On the likelihood of Nigeria being upgraded further, Nonyane said “Currently, we see a path to a sustainable recovery in CBN foreign exchange position. And sustained current account surpluses. Currently, the current account surplus is low, below one per cent of the GDP, although they are experiencing some surpluses, it is still not significant in addition to that, if we see a sustained reduction in inflation and greater stability in the foreign exchange markets, and one key factor is the tax revenue. We need to see stronger mobilisation of domestic non-oil revenue. So all of these combined collectively, it’s not one or the other, which could potentially lead to an upgrade.
“Low tax revenue base has contributed to the government’s very high interest-to-revenue ratio which currently stands at 38 per cent and that is quite high. This is about four times more of the B rating median and forms a key rating consideration.”
