This estimate is significantly lower than the officially reported figure of $33.8 billion as of August 17, according to the Central Bank of Nigeria (CBN) website.
JP Morgan’s estimate contrasts sharply with the $14 billion net figure that was reported at the close of 2021.
The financial institution highlighted that the discrepancy in the forex reserve numbers is a result of increased currency swaps and borrowings against the foreign exchange reserve.
In its report titled “Nigeria: Reform pause rather than fatigue,” JP Morgan detailed its assessment, explaining that it derived its estimates based on partial information from the audited financial accounts.
The report stated that the CBN’s net forex reserves were around $3.7 billion at the end of the previous year, down from $14 billion at the end of 2021.
The bank’s calculations involved incorporating $5 billion in International Monetary Fund Special Drawing Rights (SDR) into the external reserves, leading to a total gross forex reserve of $37.8 billion. This estimation was aligned with the central bank’s previously published 30-day moving average of $37.08 billion.
JP Morgan also factored in the adjustment of the gross external reserves by considering three key forex liability categories: forex forwards ($6.84 billion), securities lending ($5.5 billion), and currency swaps ($21.3 billion). The bank estimated currency swaps by deducing forex forwards and outstanding Over The Counter (OTC) Futures balances from the overall aggregate published in the financial accounts.
The report acknowledged that the CBN’s forex reserve might be under pressure due to the lower estimate. However, it highlighted that the CBN is still capable of managing this situation, particularly given the profitability of swap arrangements between the CBN and commercial banks, along with anticipated rising rates.
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