Global Ratings agency, Fitch Ratings has warned the Nigerian Government that the ongoing foreign exchange (FX) reforms are necessary to boost foreign direct investment (FDI) and foreign portfolio investment (FPI) not higher crude oil production.
Gaimin Nonyane, Director of Sovereigns at Fitch made this known at a presentation on Monday noting that Nigeria’s current account (CA) will be strengthened by increasing oil refining capacity, but it is the reforms that are still very crucial in attracting foreign investments.
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The presentation document noted: “oil recovery and improving oil refining capacity to support C/A, but FDI and portfolio flows depend on FX reform.”
Fitch also highlights the substantial fiscal and monetary reforms Nigeria has undertaken over the past year to stabilize the macroeconomic environment and enhance policy coherence and credibility.
Despite these reforms, Nigeria faces significant challenges in managing its debt. Fitch highlighted that pressure on interest-to-revenue ratios remains high at 38%, driven by higher interest rates and structurally low revenue-to-GDP ratios.
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The rating agency also projected a decline in Nigeria’s debt costs, although they are expected to remain significantly high.
To mitigate rising debt costs, Nigeria has implemented measures, such as securitization of Central Bank overdraft, reduction in Central Bank financing, as well as revenue mobilization and tax reforms.
Fitch projects that these efforts will lead to a decline in the interest-to-revenue ratio, averaging 34% in 2024-2025.
However, this ratio will remain one of the highest among ‘B’ rated sovereigns, indicating persistent fiscal challenges.
Also, Fitch highlights that the country’s gross FX reserves are expected to recover modestly. The success of Nigeria’s economic reforms will largely depend on the sustainable recovery of FX reserves, easing domestic foreign currency supply constraints, and maintaining current account surpluses.
