Fitch Ratings Raises Alarm of Further Naira Depreciation Amid Budget Shortfall
- Fitch Ratings has warned that the naira could face further depreciation if the country fails to meet its fiscal deficit reduction goals
- The agency warned that missing the fiscal deficit target might increase pressure on the exchange rate
- It observed that efforts to address foreign exchange challenges have progressed more slowly than anticipated
Legit.ng journalist Victor Enengedi has over a decade's experience covering Energy, MSMEs, Technology and the Stock Market.
Fitch Ratings has cautioned that Nigeria's economic stabilisation efforts could face serious hurdles if the country fails to meet its fiscal deficit reduction goals.
The international credit rating agency emphasised that a larger-than-anticipated budget deficit in 2025 might trigger further depreciation of the naira, escalating inflation, and higher borrowing costs, which could jeopardise the government’s reform initiatives.
Source: UGC
Fitch flags potential naira decline
In a previous report, Fitch had forecasted that the naira may fall to around N1,993 per dollar by 2028.
In its latest evaluation, Fitch examined Nigeria's 2025–2027 Medium-Term Expenditure Framework, which anticipates a significant reduction in the budget deficit.
However, the agency raised concerns about the framework’s assumptions, such as oil prices at $75 per barrel and production levels of 2.06 million barrels per day, including condensates.
These projections are notably more optimistic than Fitch’s forecasts of $70 per barrel and 1.77 million barrels per day.
It said:
“Reducing the deficit in line with the MTEF would provide further credibility for the government’s reform agenda, but if the deficit target is missed, it may increase the pressure for further naira depreciation, as well as putting upward pressure on prices and interest rates."
The agency cautioned that failing to meet the fiscal deficit target could intensify pressure on the exchange rate.
Although reforms aimed at streamlining the exchange rate system and tightening monetary policy have been implemented, the naira has continued to experience depreciation pressures.
A growing disparity between the official exchange rate and the parallel market rate has resurfaced in recent months, underscoring persistent foreign exchange challenges.
Fitch acknowledged the launch of an electronic FX matching platform on December 2, 2024, as a move toward improved transparency but noted that progress in resolving foreign exchange issues has been slower than expected.
Rewane advises CBN to stabilise naira
In related news, Legit.ng reported that Bismarck Rewane has proffered solutions to the current state of the Nigerian economy.
The renowned economist called on the Central Bank of Nigeria (CBN) to focus on stabilising the naira and controlling money supply growth to mitigate inflationary pressures.
He also identified forex supply shortages, high energy costs, and poor policy coordination as key factors in economic instability.
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Source: Legit.ng
