Nigeria’s weak external reserves are a concern – Fitch Ratings

Nigeria’s weak external reserves, as disclosed by CBN’s recent data, is a concern as it highlights external risk and policy challenges, Fitch Ratings has said.

According to analysisan by the credit ratings firm, Nigeria’s weak net international reserve position underlines Nigeria’s external vulnerabilities.

This vulnerability is due to recent setbacks in reform efforts and constraints on reserve holdings.

CBN’s Recent Financial Statements

Fitch Ratings has raised concerns about the recent financial disclosure by the Central Bank of Nigeria.

The rating agency says that the recent publication by the Apex Bank shows a weaker-than-expected net reserve position.

Recall that CBN had disclosed that it owes JP Morgan and Goldman Sachs a combined sum of $7.5 billion as of the financial year ended December 2022. Also included as part of its liabilities is another $6.3 billion owed in foreign currency forwards.

What Fitch Ratings is saying

Fitch welcomed the increased transparency by the apex bank, which released its audited financial statements for the first time in seven years.

However, it noted that “important gaps remain, preventing a reliable assessment of the net reserve position”.

The rating agency had affirmed Nigeria’s rating at ‘B-’ with a Stable Outlook in May, disclosing that the country’s external finances were a concern.

“The CBN financial statements indicate that liabilities at end-2022 include USD7.5 billion of securities lending (USD5.5 billion of which is short term), though it is unclear whether the pledged assets are reserve-eligible and are included in the CBN’s gross reserve figure.

In addition, there is a USD6.8 billion short-term liability from foreign-currency forward payables. Particular uncertainty surrounds nearly USD32 billion of “FX forwards, OTC futures, and currency swaps”, which are recorded as an off-balance-sheet “commitment” but are not broken down.


This could include some non-deliverable contracts settled in Nigerian naira, which would not be a drain on reserves, as well as commitments of a longer tenor.”

Fitch also sees the appointment of new Minister of Finance, Wale Edun as “generally supportive of reform”.

Declining Foreign Reserves

Fitch also noted that despite CBN making partial progress in clearing its backlog of unsettled foreign exchange (which further highlights ongoing Fx shortages), its weaker foreign reserve position could affect the pace of exchange-rate liberalization through more constrained FX supply and the potential to weigh on investor sentiment.

It also highlighted that Nigeria’s gross foreign reserves fell by $ 3 billion in January-August 2023, reaching $34 billion.

This represents approximately 4.1 months of current external payments, emphasizing the need for careful management of external challenges.