JP Morgan says Nigeria’s FOREX reserves fell to $3.7bn in 2022

Global financial giant, JP Morgan, has come out with a damning report that Nigeria’s net foreign exchange (FX) reserves fell to $3.7 billion as of 2022, contrary to $36.61 billion quoted by the Central Bank of Nigeria, CBN.

However, data from the CBN showed that the nation’s external reserves fell by $3.23 billion or 8.5 per cent to $33.92 billion on July 9 from $37.15 billion on December 31st 2022.

JP Morgan, who revealed this in its latest report on Africa’s largest economy, Nigeria, explained that the $3.7 billion figure is significantly lower than its previous estimate, owing to larger-than-expected currency swaps and borrowing against existing reserves.

This development comes on the heels of CBN’s five-year financial statements released following the probe of the apex bank.

“Based on partial information from the audited financial accounts, we estimate that CBN’s net FX reserves were around $3.7 billion at the end of last year, from $14.0 billion at end-2021,” the report stated.

Part of the report reads:

“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.”

The assumptions made in their report 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.

“Adjusting the 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”

“Estimating currency swaps by backing out FX forwards and outstanding OTC Futures balances from an overall aggregate published in the financial accounts.”

The bank, however, noted that the CBN still can withstand the pressure accompanying the low FX reserve especially, stressing that with the profit from swap arrangements between the CBN and commercial banks, the rates will continue to increase.