By Kamil Opeyemi
A global financial services firm, JP Morgan, has calculated Nigeria’s net foreign exchange (FX) reserves to be approximately $3.7 billion. JP Morgan’s figures contradicts the $37.15 billion reported by the Central Bank of Nigeria (CBN) as of December 31, 2022.
According to data from the CBN, the nation’s external reserves experienced a decline of $3.23 billion or 8.5 percent, dropping from $37.15 billion on December 31, 2022, to $33.92 billion on July 9.
JP Morgan’s report titled “Nigeria: Reform pause rather than fatigue,” JP Morgan revealed the lower FX reserve figure of $3.7 billion. The report states that this difference is due to larger currency swaps and borrowings against the FX reserve.
“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.”
However, JP Morgan emphasized that their $3.7 billion estimate is derived from assumptions, and any inaccuracies in these assumptions could alter the calculated figure.
The assumptions made in the report are:
Adding $5.0 billion in International Monetary Fund (IMF) Special Drawing Rights (SDR) to external reserves, resulting in a total gross FX reserve of $37.8 billion, roughly aligning with the previously published 30-day moving average of $37.08 billion on the central bank’s website.
Adjusting the gross external reserves by accounting for three key FX liability lines: FX forwards ($6.84 billion), securities lending ($5.5 billion), and currency swaps ($21.3 billion).
Estimating currency swaps by deducing FX forwards and outstanding over-the-counter (OTC) Futures balances from an overall aggregate published in the financial accounts.
JP Morgan noted that despite the pressure stemming from the lower FX reserve, the CBN remains capable of withstanding it.