Business a.m
Credit ratings agency Fitch has noted that the Central Bank of Nigeria (CBN) continues to face challenges in clearing the backlog of foreign exchange (FX) obligations due to a shortage of FX. This is as the country’s high debt service to revenue ratio is also negatively impacting its sovereign credit rating.
A statement by Gaimin Nonyane, the director of Middle East and Africa Sovereigns at Fitch,pointed out that the ongoing foreign exchange shortages in Nigeria are exerting pressure on the naira. The statement highlighted the need for the CBN to take measures to address the shortage of FX in the country.
“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 stated.
Toby Iles, the head of Middle East and Africa Sovereigns at Fitch, further highlighted the high interest payments to revenue ratio as a weakness for Nigeria’s credit rating. According to Iles, the interest payments to revenue ratio which surpasses 40 per cent is significantly higher than the median for B-rated sovereigns, indicating that the government is spending a large portion of its revenue on servicing its debt.
According to Iles, interest-to-revenue ratios across Africa have increased significantly since 2014, mainly due to higher levels of borrowing and the impact of rising global interest rates on borrowing costs.
The CBN, headed by Olayemi Cardoso , recently started to clear a backlog of FX forwards to companies that are looking to repatriate funds abroad. This backlog has built up over time, and estimates suggest that it could be as much as $7 billion. In clearing the backlog, the CBN is aiming to ease pressure on the naira and stabilise the FX market.
The central bank also disclosed that it has successfully resolved approximately $2 billion worth of backlog within the last three months. Furthermore, it emphasised its commitment to maintaining liquidity in the foreign exchange (forex) market.
