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HomeBusinessJP Morgan estimates Nigeria's net FX Reserve at $3.7 bln in 2022

JP Morgan estimates Nigeria’s net FX Reserve at $3.7 bln in 2022

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A recent report by JP Morgan revealed that Nigeria’s net foreign exchange (FX) reserves had dwindled to $3.7 billion by the close of 2022.

This information was published in the firm’s latest report titled ‘Nigeria: Reform Pause rather than Fatigue.’

However, the Central Bank of Nigeria (CBN)stated on its website that the country’s gross foreign exchange reserves stood at $36.61 billion at the end of 2022. The forex reserves stood at $33.82 billion by August 17, 2023.

Nigeria’s FX reserves play a pivotal role in safeguarding the naira’s stability and underpinning the nation’s substantial import expenditures.

JP Morgan’s report explicates that the $3.7 billion estimate is markedly lower than previous projections due to larger-than-anticipated currency swaps and borrowing against existing reserves.

“Our assessment, based on partial information from the audited financial accounts, posits that CBN’s net FX reserves were approximately $3.7 billion at the close of the preceding year, down from $14.0 billion at the close of 2021,” the report asserts.

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The firm emphasized that this $3.7 billion estimate was arrived at through a series of assumptions that, if proven incorrect, could substantially alter the projected figure.

“To derive this estimate, we have assumed a few factors that, if found to be inaccurate, would significantly alter the outcome. These factors encompass: (i) the addition of $5.0 billion in IMF Special Drawing Rights (SDR) to external reserves, resulting in total gross FX reserves of $37.8 billion, roughly aligning with the previously disclosed 30-day moving average of $37.08 billion as posted on the central bank’s website,” the report elaborated.

(ii) Adjusting gross external reserves by incorporating three principal FX liability lines—FX forwards ($6.84 billion), securities lending ($5.5 billion), and currency swaps ($21.3 billion); and (iii) assessing currency swaps by deducing FX forwards and outstanding OTC futures balances from an overall aggregate published in the financial accounts.

JP Morgan, however, contended that while diminished net FX reserves signal ongoing FX market pressures, the Central Bank of Nigeria (CBN) maintains the capacity to procure FX at commercial and semi-commercial rates.

“Given the lucrative nature of the currency swap arrangements between CBN and domestic commercial banks, we anticipate these to persist, albeit at reduced scales and arguably more rigorous rates,” the report added.

Furthermore, the report noted that authorities are in the initial stages of identifying assets for sale, which could provide intermediate-term relief.

The regulatory bank published financial statements and accounts showed that the CBN is exposed to JP Morgan and Goldman Sachs to the tune of $7.5 billion as of the end of last year.

(Edited by Oludare Mayowa; omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

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