Fitch Report Highlights Naira Scarcity's Impact on Exchange Rate and Dollar Demand

• The scarcity of the Naira is expected to affect the demand for US dollars, leading to exchange rate volatility
• In a new report by Fitch ratings specifically warned that the naira value will depreciate
• Naira to dollar exchange rate in the official market and black market as remained around the N416 and N750 rate respectively

Fitch Ratings warns that the scarcity of Naira notes in Nigeria will cause a surge in demand for foreign currencies like the Dollar, and weaken the Naira in the foreign exchange market.

The agency stated this in its report titled "Nigeria’s Economic Challenges Highlight Importance of Post-Election Policies."

The new report highlighted the risks associated with grave shortages of newly redesigned naira notes by the Central Bank of Nigeria (CBN) seeking to foist cashless economy.

The report stated:

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“The Supreme Court’s suspension of a 10th February deadline for exchanging old banknotes into new eases, at least temporarily, the risk of intensifying cash shortages.

“However, the demonetisation drive is still likely to be disruptive in the near term. Associated cash shortages may hit consumer spending and boost demand for foreign currency, aggravating foreign-exchange shortages.

Fitch, the provider of credit ratings, commentary, and research added:

"It is unclear if there will be long-term economic advantages, such as increased usage of the formal banking system or increased use of digital payment systems.

Vanguard reports that other highlights of the report also revealed the fiscal challenges facing the country noting that Nigeria’s fiscal profile would remain weak in the medium term.

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It stated:

“The country faces numerous other challenges to its fiscal sustainability, external finances and economic outlook.

“General government interest/revenue is extremely high (47 per cent in 2022 by Fitch’s estimate) and we expect it will remain so given constraints on revenue mobilisation, increasing debt and high-interest rates.

“Structurally low non-oil revenue, spending pressures and weak economic growth imply substantial fiscal financing needs.

“The government faces external debt amortisations of $2.5 billion in both 2023 and 2024, an increase on recent years, although the majority is bilateral and multilateral debt service.”

After 46 years, NNPC ends operation as a govt corporation

Meanwhile, in another report, the Nigerian National Petroleum Corporation (NNPC) has ended its operations as a government corporation

46 years ago the NNPC was established to oversee the country's oil and gas industry as a regulator

NNPC is now officially NNPC limited liability company and will seek to commercialise its operation for the future

Source: Legit.ng