Fitch projects Nigeria’s FX reserves to fall to $47bn by year end despite reforms

GLOBAL credit rating agency, 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 macroeconomic policy improvements.

In its latest assessment, the agency affirmed Nigeria’s long term foreign currency issuer default rating at ‘B’ with a stable outlook, noting that the anticipated decline reflects rising fiscal pressures and persistent external risks.

Fitch disclosed that gross external reserves rose to $49.4 billion at the end of March 2026, up from about $32 billion in April 2024, largely supported by recent policy adjustments in the FX market. However, it warned that these gains may not be sustained.

“We forecast a marginal decline to $47 billion at end 2026, reflecting higher spending pressures and external risks,” the agency stated.

The projection comes amid continued reforms by the Central Bank of Nigeria aimed at stabilising the FX market, including measures to ease restrictions on the repatriation of oil export proceeds by international oil companies.

According to Fitch, these reforms have supported a “gradual normalisation” of the FX market and improved investor confidence, although structural weaknesses continue to weigh on the economy.

The agency noted that Nigeria’s rating is supported by its large economy, relatively developed domestic debt market, vast oil and gas reserves, and an improved monetary and exchange rate policy framework. However, it added that weak governance indicators, high inflation, security challenges, heavy reliance on hydrocarbons, and persistently low revenue generation remain key constraints.

READ ALSO: NAF airstrikes kill scores of terrorists in Borno

Nigeria’s external reserves recently hit a 17 year high of $50.02 billion on March 11, before easing to $48.80 billion as of April 10.

Fiscal pressures, inflation risks persist

Fitch also warned of mounting fiscal pressures, projecting that Nigeria’s budget deficit could widen to nearly five per cent of Gross Domestic Product (GDP) in 2026. The expected expansion is attributed to higher government spending, particularly on social interventions, security, and possible election related expenditures.

On inflation, the agency projected that price growth would remain elevated, averaging about 16 per cent in 2026, despite recent moderation. It cautioned that renewed fiscal loosening or further fuel price adjustments could reverse recent disinflation gains.

While describing Nigeria’s external position as “stronger but still vulnerable,” Fitch noted that current reserves provide about seven months of import cover above the median for countries within the ‘B’ rating category.

The agency further projected that the Nigerian economy would grow by 4.1 percent in 2026, supported by relative exchange rate stability and improved performance in the non oil sector.

It also highlighted improvements in the banking sector following recapitalisation measures driven by the CBN, noting that stronger capital buffers could enhance credit expansion and support cross border activities.

Despite the outlook, Fitch warned that risks remain skewed to the downside, including potential deterioration in macroeconomic stability, renewed external shocks, or a sustained rise in fiscal deficits.

However, the rating agency added that Nigeria’s outlook could be upgraded if there is sustained progress in reducing inflation and stronger revenue mobilisation that significantly improves public finances.