Fitch Ratings has projected that Nigeria’s foreign reserves would increase to $43 billion in 2022, up from $40.5 billion at the end of 2021, indicative of an uptick of almost $3 billion.
This was disclosed in its latest report released on Monday, March 14, titled ‘Fitch affirms Nigeria at ‘B’; Outlook stable.’
Fitch Ratings has maintained Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a Stable Outlook, as it did a year ago.
The ‘B’ rating could be categorized as being in the non-investment-grade category when compared with the investment-grade category of ‘BBB’ to ‘AAA’. However, the ‘B’ may be seen to have a stable outlook as it is rated above the ‘CCC’ to ‘D’ (default).
Fitch stated that Nigeria has a low World Bank Governance Indicator (WBGI) ranking at 16.4, reflecting weak institutional capacity, uneven application of the rule of law and a high level of corruption.
This brings to question the capacity for Nigeria to enjoy the benefits of a surging price.
Fitch attributed the projected improved external liquidity to the surge in oil prices. The report said, “Nigeria’s gross international reserves have been bolstered by higher oil export receipts, which will continue in 2022. We forecast reserves to increase to USD43 billion in 2022, up from USD40.5 billion at end-2021.”
According to the report, oil exports and remittance inflows combined to help restore the current account (CA) into balance in 2021, following a deficit of 4.2 percent of GDP in 2020.
“Our baseline assumption is for the CA balance to remain broadly unchanged in 2022, but sustained higher oil prices at their present level of USD112 per barrel could widen the 2022 current account surplus to 4% of GDP, with upside to Nigeria’s international reserves,” the report said.
Fitch also mentioned the disruption caused by fuel subsidies on Nigeria’s Fiscal Balance. “In January 2022, the government reversed a plan to phase out the implicit fuel subsidies that support price controls on petroleum. This has necessitated an adjusted federal government budget for 2022 with a deficit target that is 0.6% of GDP wider than the original target, due to the subsidies (with an additional equal hit to the other levels of government),” it said.
It added, “Higher oil prices would also boost the subsidy cost, denting the benefit of higher global oil prices to the budget. We forecast the 2022 general government fiscal deficit to remain broadly unchanged from 4.1% of GDP in 2021. However, we estimate that an USD10 per barrel increase would narrow the fiscal deficit by 0.5% of GDP.”
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