‘Naira Crisis could escalate FOREX shortages’

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Fitch Ratings, one of the global Rating Agencies, has said that Nigeria faces major economic challenges ahead of its elections due on February 25, noting that policy choices by the incoming administration could have a significant impact on the country’s credit profile.

In a statement on Tuesday, Fitch noted that the Nigerian Supreme Court’s suspension of a February 10 deadline for exchanging old banknotes into new eases, at least temporarily, the risk of intensifying cash shortages.

The Agency noted however, that the demonetisation drive is still likely to be disruptive in the near term.

It noted that “associated cash shortages may hit consumer spending and boost demand for foreign currency, aggravating foreign-exchange shortages. It is not yet clear whether there will be offsetting longer-term economic benefits, such as greater use of the formal banking system or enhanced use of digital payment systems,” it said.

The comment on the Naira redesign comes as the governor or the Central Bank of Nigeria, Godwin Emefiele, on Tuesday said there is no need to shift the February 10 deadline, as the Bank was to address the new notes supply issues. He said the said the tension and elevated agitation over the currency redesign were staged and sponsored propaganda.

Fitch noted further that Nigeria faces numerous other challenges to its fiscal sustainability, including external finances and economic outlook.

Fitch downgraded Nigeria’s rating to ‘B-’ from ‘B’ in November 2022, with a Stable Outlook, which it said reflected continued deterioration in debt servicing costs and external liquidity.

Fitch also said Nigeria’s fiscal profile will remain weak in the medium term. According to the Agency, General government interest/revenue is extremely high (47% in 2022 by Fitch’s estimate)” and we expect it will remain so given constraints on revenue mobilisation, increasing debt and high interest rates,” it noted.