A leading global financial services firm, JP Morgan, has estimated Nigeria’s net FX reserve to be around $3.7 billion much lower than the $14 billion reported at the end of 2021.
The bank, which disclosed this in its latest report on Nigeria titled “Nigeria: Reform Pause Rather Than Fatigue”, noted that the lower-than-reported FX reserve was the result of larger currency swaps and borrowings against the FX reserve.
According to the firm, based on partial information from the audited financial accounts, we estimate that CBN’s net FX reserves were around US$3.7bn at the end of last year, from US$14.0bn at the end-2021.”
It, however, clarified that it arrived at the $3.7 billion by making some assumptions which if incorrect would change the figure in their estimates.
The assumptions in the report by the financial services firm are an addition of US$5.0bn in IMF Special Drawing Rights (SDR) to external reserves to arrive at total gross FX reserves of US$37.8bn, broadly in line with the 30-day moving average of US$37.08bn previously published on the central bank’s website, and adjusting the nation’s gross external reserves with three key FX liability lines that include FX forwards (US$6.84bn), securities lending (US$5.5bn) and currency swaps (US$21.3bn); and”
In addition, JP Morgan also assumed that estimating currency swaps by backing out FX forwards and outstanding OTC Futures balances from an overall aggregate published in the financial accounts.
However, the firm noted that the CBN still can withstand the pressure accompanying the low FX reserve, especially as profit from swap arrangements between it and commercial banks, the rates will continue to increase.
Meanwhile, the Nigerian National Petroleum Company Limited (NNPCL) had to borrow $3 billion from the Afreximbank last week to shore up the nation’s FX reserve to ease liquidity in the exchange market.
As at the end of June this year, the country’s FX reserve stood at $34.1 billion, which raises some concerns among analysts about the latest JP Morgan’s estimates
