Fitch: Naira scarcity may trigger foreign exchange demand

Fitch Ratings has said the cash scarcity in Nigeria may reduce consumer spending and boost demand for foreign currency.

This was contained in its latest report titled: ‘Nigeria’s Economic Challenges Highlight Importance of Post-Election Policies’.

The global credit ratings agency, said it was not yet clear whether there would be long-term economic benefits of the naira redesign policy, such as greater use of the formal banking system or enhanced use of digital payment systems.

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

“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 said Nigeria is faced with major economic challenges ahead of elections due on 25 February, and policy choices by the incoming administration could have a significant impact on the country’s credit profile.

It explained that it downgraded Nigeria’s rating to ‘B-‘from ‘B’ in November 2022, with a stable outlook, as a reflection of the country’s continued deterioration in debt servicing costs and external liquidity.

Back to top button