Nigeria's Weaker Reserves Highlight External Risk Challenges

Highlights

• New figures released by the Central Bank of Nigeria (CBN) showing the country’s weaker net international reserve position points to external risks for Africa’s biggest economy, according to global credit rating agency, Fitch Ratings. 
• However, recent reforms such as exchange rate liberalization and improvements in the overall monetary policy framework could strengthen Nigeria’s credit profile by easing foreign-currency supply constraints.
• Fitch also welcomed the increased transparency by the central bank, which released its audited financial statements for the first time in seven years covering the period between 2016 – 2022. 

Source: Zawya

Our Takeaway

President Bola Tinubu of Nigeria has implemented extensive reforms in Africa’s largest economy, including the removal of foreign currency controls, which has resulted in the devaluation of the naira and an increase in inflation rates. But these reforms have encountered some obstacles along the way with the country’s largest workers’ union protesting in response to the rising cost of living, particularly after the removal of fuel subsidies. Despite facing significant socio-political resistance, Fitch believes that the liberalization of the exchange rate will facilitate the attraction of capital inflows to bolster the reserves of the West African nation.