International credit rating agency Fitch Ratings has projected that the Nigerian currency, the naira, will end the year at 1,450 to the US dollar. This forecast was made by Gaimin Nonyane, Director of Sovereigns at Fitch Ratings, during a post-sovereign rating webinar focused on Nigeria and Egypt.
In May, Fitch revised the outlook on Nigeria’s Long-Term Foreign-Currency Issuer Default Rating from Stable to Positive and affirmed the IDR at ‘B-’. This adjustment was driven by reforms in the foreign exchange market, oil industry, and monetary policy over the past year.
Nonyane highlighted the naira’s ongoing volatility since its floating in June 2023, noting, “The naira is still in price discovery mode, so we expect a lot of volatility in the near term. However, multilateral donor funding and improved oil receipts expected in Q3 should help to reduce volatility.” Fitch projects an average exchange rate of about 1,200/$ this year, ending around 1,450/$ by December.
Looking ahead to 2025, Nonyane indicated a potential for further depreciation, contingent on the momentum of foreign exchange reforms. The prospect of Nigeria’s rating upgrade hinges on several factors, including a sustainable recovery in the Central Bank’s foreign exchange position, consistent current account surpluses, reduced inflation, and stronger mobilization of domestic non-oil revenue.
Despite the low current account surplus and high interest-to-revenue ratio, Fitch expects a recovery in the oil sector to support Nigeria’s current account in the short term. The anticipated increase in oil refining capacity, particularly from the Dangote plant, is projected to reduce transport costs and lower refined oil imports, easing foreign exchange demands.
Regarding Nigeria’s foreign reserves, Nonyane noted a decline from $34 billion in March to around $32.7 billion due to debt repayments and foreign exchange sales. However, Fitch expects a modest rise in foreign exchange reserves by year-end, supported by a recovery in oil receipts, multilateral funding, and potential commercial borrowing.
Nonyane also highlighted the external debt servicing challenges, projecting an increase to $4.8 billion in 2024 and $5.2 billion in 2025, including a $1.1 billion Eurobond due in November 2025. Sustaining the foreign exchange momentum is crucial for navigating these challenges.
On multilateral funding, Nigeria’s Finance Minister, Wale Edun, mentioned that the World Bank board will consider a $2.25 billion package for Nigeria in the coming weeks. This funding, which includes $1.5 billion for Development Policy Operation, is expected to be available shortly after the board meeting, reflecting confidence in Nigeria’s economic stabilization efforts.
Edun emphasized the government’s strategic use of multilateral development banks to support Nigeria’s economic recovery, stating, “We know how to use the multilateral development banks to our advantage… They agree with our homegrown policies for trying to get Nigeria moving again.”
