Finance - November 26, 2021

Fitch Solutions Projects Nigeria’s Naira to Decline in 2022

The forecast was reviewed since CBN’s last devaluation occurred in May when the naira’s value was reduced to N408.16/$1, from N380/$1 the previous day.

November 26, 2021

3 min read

International credit rating agency Fitch Solutions has projects that Nigeria’s naira will decline in 2022, despite the country’s foreign reserves in the coming months. While the CBN continues to intervene to sustain the naira exchange rate, Fitch Solutions predicted that the naira value would weaken only slightly from NGN412.75/$1 to NGN416.00/$1 by the end of 2021.

The forecast was reviewed since CBN’s last devaluation occurred in May when the naira’s value was reduced to N408.16/$1, from N380/$1 the previous day. Fitch Solutions anticipates the naira to decline to N428/$1 in 2022 as the demand in dollar rises.

More on Nigeria’s Foreign Reserves

The COVID-19 pandemic and global lockdown reduced the country’s reserves, causing trade disruptions with international partners and reducing oil prices in 2020. Reserves fell to $33.3 billion in July 2021, down from $36.4 billion in January.

In late August, the CBN actions, aided by increased oil prices and international financial institution handouts like the $3.4 billion Nigeria received from the IMF Special Drawing Rights, have boosted reserves.

External reserves were $41.41 billion on November 18, 2021, compared to $41.34 billion in October. In its report themed on Nigeria’s country risk, Fitch stated, “The naira will weaken further, to an average of NGN428.00/$1, in 2022 as dollar demand continues to rise on the back of the strengthening economic recovery.

However, we expect Nigeria’s international reserves to continue to improve in the coming quarters, thus bolstering the CBN’s ability to manage the pace of currency depreciation”.

At Fitch Solutions, we expect that the Central Bank of Nigeria (CBN) will seek to maintain the current value of the managed naira exchange rate until the end of 2021, after it implemented a devaluation in May 2021 that saw the currency fall from NGN380.00/USD on May 11 to NGN408.16/ USD on May 12.

Fitch Solutions, maintains that the forecast will significantly improve Nigeria’s foreign reserves in the coming months. Even though weakening reserves signal the devaluation of the naira.