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Fitch: Nigeria’s FX reserves to drop to $47bn by year end despite reforms - THE CABLE
Fitch Ratings has projected that Nigeria’s external reserves will decline to $47 billion by the end of 2026, despite ongoing foreign exchange (FX) reforms and recent improvements in macroeconomic policy.
In its latest assessment affirming Nigeria’s long-term foreign-currency issuer default rating at ‘B’ with a stable outlook, the rating agency said the expected moderation reflects rising fiscal pressures and external risks.
Fitch noted that gross external reserves rose to $49.4 billion at the end of March 2026, up from about $32 billion in April 2024, supported by recent policy adjustments in the foreign exchange market.
However, it said the gains may not be fully sustained.
“We forecast a marginal decline to $47 billion at end-2026, reflecting higher spending pressures and external risks,” the agency said.
The projection comes amid continued reforms by the Central Bank of Nigeria (CBN) aimed at stabilising the foreign exchange market, including measures to ease restrictions on the repatriation of oil export proceeds by international oil companies.
Fitch said the reforms have supported “gradual normalisation in the FX market” and improved investor confidence, but warned that structural weaknesses continue to weigh on the economy.
The agency said Nigeria’s rating reflects “a large economy, a relatively developed domestic debt market, large oil and gas reserves and an improved monetary and exchange rate policy framework”.
However, the agency added that the country remains constrained by weak governance indicators, high inflation, security challenges, heavy reliance on hydrocarbons and persistently low revenue generation.
The foreign exchange reserves reached it highest level in 17 years on March 11, when it hit $50,02 billion, but the external reserves stand at $48.80 billion as of April 10.
FITCH PROJECTS WIDENING BUDGET DEFICIT
Fitch also warned that fiscal pressures are expected to intensify, projecting that Nigeria’s budget deficit could widen to nearly 5 percent of GDP in 2026.
It attributed the expected widening to higher government spending, including social and security-related expenditures, as well as election-related fiscal pressures.
On inflation, the agency said price growth is expected to remain elevated despite recent moderation.
The firm projected inflation to average about 16 percent in 2026, warning that renewed fiscal loosening or fuel price adjustments could reverse recent disinflation gains.
Fitch also highlighted Nigeria’s external position as “stronger but still vulnerable,” noting that reserves now provide about seven months of import cover — above the median for countries in the ‘B’ rating category.
On growth, the agency projected Nigeria’s economy to expand by 4.1 percent in 2026, supported by relative exchange rate stability and non-oil sector performance.
Fitch also cited improvements in the banking sector following recapitalisation measures driven by the CBN, saying stronger capital buffers could support credit expansion and cross-border banking activities.
Despite the outlook, the agency warned that risks remain tilted to the downside, including weaker macroeconomic stability, renewed external pressure, or a sustained rise in fiscal deficits.
However, Fitch said Nigeria could be upgraded if there is sustained progress in disinflation and stronger revenue mobilisation that significantly improves public finances.
