In its latest credit outlook for the country, global credit ratings agency, Fitch, says the lack of clarity over the precise size and composition of Nigeria’s foreign reserves remains a significant constraint on the nation’s sovereign credit profile.
The report also noted that Nigeria’s gross foreign reserves have seen a decline, falling from $34.4 billion in mid-March to $32.2 billion by the end of April.
Fitch noted that the reduction partly reflects debt repayments and forex sales to Bureau de Change operators to bolster the currency.
This sentiment was also shared by the CBN governor, Yemi Cardoso, who recently said that the decreasing reserves were primarily due to debt repayments and other standard financial obligations, rather than efforts to defend the naira.
“Uncertainty continues over the net forex reserve position, with a particular lack of clarity on near USD32 billion of ‘forex forwards, OTC futures, and currency swaps’ recorded as an off-balance sheet “commitment” in CBN’s last consolidated financial statement for 2022.
“Fitch estimates around 30 per cent of Nigeria’s reserves are made up of forex bank swaps, although we expect most of these to continue to be rolled over.”
Despite these concerns, Fitch anticipates that most of the forex bank swaps will continue to be rolled over, which could provide some temporary stability in the reserves management.
