New figures released by the Central Bank of Nigeria (CBN) showing the country’s weaker net international reserve position points to external risks for Africa's biggest economy, Fitch Ratings said. 

Exchange rate liberalisation and improvements in the overall monetary policy framework could strengthen Nigeria's credit profile by easing foreign-currency supply constraints, but a recent loss of reform momentum and the constrained reserve position pose significant challenges, Fitch said in a statement on Wednesday. 

Nigeria's President Bola Tinubu has introduced sweeping reforms in Africa's biggest economy, including removing foreign currency controls, which has caused the naira to weaken and fanned inflation. 

However, the drive has hit some bumps on the road with the country's biggest workers' union holding protests against the rising cost of living after a fuel subsidy was also removed and warned of bigger strikes to come. 

Fitch said although the reforms introduced by Tinubu face strong socio-political resistance, the exchange rate liberalisation should make it easier to attract capital inflows to the West African country's reserves.

Fitch welcomed the increased transparency by the central bank, which released its audited financial statements for the first time in seven years covering the period between 2016 - 2022. 

However, it noted that "important gaps remain, preventing a reliable assessment of the net reserve position." 

The ratings agency, which had affirmed Nigeria’s rating at ‘B-’ with a Stable Outlook in May, said the country’s external finances were a concern. 

"Particular uncertainty surrounds near USD32 billion of “FX forwards, OTC futures, and currency swaps”, which are recorded as an off-balance-sheet “commitment” but are not broken down," Fitch said on the CBN’s financial results. 

JP Morgan had also said in a report last month that the CBN's financial results showed foreign exchange reserves were "significantly lower than previously estimated." However, a senior official at the bank strongly rejected JP Morgan's assessment.

(Editing by Seban Scaria; seban.scaria@lseg.com )