Naira in Trouble?: JP Morgan Reveals Nigeria’s Forex Reserve Is at $3bn, Far Lower Than CBN’s Figure

Aug 22, 2023 | Uncategorized

  • The Central Bank of Nigeria data shows Nigeria’s gross foreign reserve is above $33 billion as at August 17, 2023
  • A new report from JP Morgan, however, estimated that foreign reserves are far below the quoted figures by CBN
  • Nigeria’s foreign reserves give the Central Bank of Nigeria (CBN) the firepower to defend the naira

Global financial service firm JP Morgan has revealed that Nigeria’s net forex reserve has declined to around $3.7 billion.

The financial institution disclosed this in its latest report on Nigeria titled “Nigeria: Reform pause rather than fatigue.”

Nigeria's foreign reserves
Nigeria’s foreign reserves movement
Photo credit: @cbn
Source: Facebook

The FX reserves figure quoted by JP Morgan is much lower than the Central Bank of Nigeria’s reported figures of about $33.82 billion published on its website.

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 bank also noted that the lower-than-reported FX reserve results from larger currency swaps and borrowings against the FX reserve.

How JP Morgan arrived at the figure

According to report a few assumptions which include:

“FX forwards ($6.84bn), securities lending ($5.5bn) and currency swaps ($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, clarified it arrived at the $3.7 billion by making some assumptions which, if incorrect, will change the figure in their estimates.

These 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.”

Is naira in trouble?

The FX reserves are an important tool for the CBN to defend the naira and ease pressure.

The lower the reserves, the more difficult it is for the CBN to meet forex demand, thereby creating pressure for the naira to depreciate.

In the report, JP Morgan noted that the CBN can still withstand the pressure accompanying the low FX reserve, especially due to profit from swap arrangements between the CBN and commercial banks.

Nigerians react

@SegunAndrews wrote:

“This is why I refuse to buy the narrative that naira’s depreciation is caused by speculation. We should be grateful to God if naira settles at N1,000 without any intervention.”

@AfolabiLBA said:

“Why do Nigeria’s political leaders complicate things?”

“Expect cheap fuel, strong Naira”: NNPC tells Nigerians after securing $3bn loan

Meanwhile, in another report, the Nigerian National Petroleum Corporation (NNPC) Limited has secured a $3 billion loan from AfreximBank.

The new loan will help strengthen the naira against the dollar and ultimately reduce the cost of petrol in the country.

NNPC Limited has provided a breakdown explaining that the loan is simply an upfront cash loan against proceeds from future crude oil production.


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