'We see a gradual depreciation' - Fitch speaks on new naira projection after CBN clears bebt

Global rating company Fitch Ratings has predicted that the value of the naira will conclude the year at N1,450 to the dollar.

Director of Fitch Ratings' Middle East and Africa sovereigns, Gaimin Nonyane, disclosed this on Tuesday at a post-sovereign rating webinar that concentrated on Nigeria and Egypt.

According to Nonyane, even though the naira has fluctuated since it began floating in June 2023, there is hope that the volatility will decrease by the third quarter of 2024.

“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 naithe ra will average about N1,200/dollar this year and end the year around N1450/dollar. And in terms of next year, we see a gradual depreciation but it also depends mainly on the foreign exchange reforms momentum. “So, this is our baseline scenario on the basis that the momentum continues at the current pace.”

Speaking further, Nonyane stated that the organisation sees a way to maintain current account surpluses and a lasting recovery in the foreign exchange position of the CBN.

She stated that as of right now, the current account surplus is small—less than 1% of GDP - are still not substantial. She also suggested increased foreign exchange market stability and a long-term decline in inflation.

She demanded that in order to possibly result in an upgrade, there needs to be a greater mobilization of local non-oil earnings.

“Low tax revenue base has contributed to the government’s very high interest-to-revenue ratio which currently stands at 38 percent and that is quite high.

“This is about four times more of the B rating median and forms a key rating consideration.”

Fitch Ratings also projected recovery in the oil sector in the short term to support the FX demands. It stated, “However, we do expect a recovery in the oil sector to support the current account over the short term. We also expect the oil refining capacity to increase over the short term as the Dangote plant ramps up capacity.”