Did CBN lie to Nigerians? JP Morgan says Nigeria’s foreign reserves far lower than figure released by apex bank

US-based financial firm, JP Morgan, has disclosed that Nigeria’s foreign reserves stood significantly lower than the figure the Central Bank of Nigeria (CBN) claimed the country has.

JP Morgan estimated in its recently released report; ‘Nigeria: Reform pause rather than fatigue’ that as of the end of 2022, about $3.7 billion was left in Nigeria’s foreign reserves.

This is significantly lower compared to the $37.08 billion reported by the Central Bank of Nigeria (CBN) at the end of last year.

The decline in the foreign reserves weakens the Federal Government’s ability to defend the naira in the forex market and support foreign trade.

Although JP Morgan stated that the estimated figure was made based on partial information from the audited financial accounts of the CBN, the financial institution said the international reserves dropped by $10.3 billion or 73.5 per cent year-on-year from $14 billion at the end of 2021.

Part of the report says: “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 end-2021.”

The firm said its conclusion was based on some assumptions and the estimated figure could change if new information comes to light

Explaining further, JP Morgan said: “In arriving at said estimate we make a few assumptions which if incorrect would substantially change the picture

They include: (i) an addition of US$5.0bn in IMF Special Drawing Rights (SDR) to external reserves in order 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.

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

Meanwhile, despite the decline in foreign exchange reserves, JP Morgan said CBN is still capable of attracting needed forex funds, “Given the highly profitable nature of the currency swap arrangements between the CBN and domestic commercial banks, we expect these to continue for sometime, albeit in smaller sizes and arguably more punitive rates,” the report stated.

It further highlighted the effort of the government in raising foreign exchange through the sale of assets and external loans to reduce the scarcity of forex.

“Furthermore, authorities are in the initial stages of identifying assets for sale, which may provide some medium-term relief. For example, the President’s policy advisory council has recommended the government sell down its stake in the most joint-venture oil and gas assets, a proposal that is estimated to bring in up to US$17bn.

“In addition, the recently announced US$3bn loan to NNPC could help partly improve FX liquidity conditions in the market. We expect NNPC to sell the dollars to CBN and remit the naira proceeds to the government as upfront payments for oil revenues and taxes. That being said, the large external financing needs of the private sector will sustain FX pressure,” the report reads

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