JP Morgan puts Nigeria’s fx reserves at $3.7bn

American multinational financial services firm, JP Morgan has estimated Nigeria’s FX reserve to be around $3.7 billion as of the end of 2022.

The bank disclosed this in its latest report on Nigeria titled “Nigeria: Reform pause rather than fatigue”.  The report also predicted headline inflation to reach 28% by the end of the year on the back of rising food prices and other impacts of President Bola Tinubu’s reforms.

Daily Trust recalled that Nigeria’s external reserves as of December 29, 2022 was put at $37.09bn, a drop of $3.43bn from $40.52bn as of the end of December 31, 2021, according to data from the Central Bank of Nigeria, CBN.

However, JP Morgan noted that the lower-than-reported FX reserve is the result of larger currency swaps and borrowings against the FX reserve.

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The bank, which made a few assumptions in arriving at the estimates, noted that, “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 bank, however, clarified it arrived at the $3.7 billion by making some assumptions which if incorrect will change the figure in their estimates.

The assumptions used in arriving at the estimates, according to the report, include: “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.”

While noting that its estimates will change if some assumptions are incorrect, JP Morgan noted that the CBN can withstand the pressure accompanying the low FX reserve.

The Nigerian National Petroleum Company (NNPC) Limited recently secured a $3 billion in crude-for-cash funding from the African Export-Import Bank (Afreximbank) to shore up the nation’s FX reserve.