Nigeria’s Foreign Reserves Less Than $4bn JP Morgan Tells FG

JP Morgan, a US-based financial service provider has listed factors such as security lending, currency swaps, and others as reasons why Nigeria’s Net foreign reserves have dropped below $4 billion.

The country’s current foreign reserves, according to figures provided in its reports put Nigeria’s Net Reserves at $3.7 billion as of December 2022.

Gross foreign reserve is defined as the government’s total holdings of foreign currency reserves, while Net foreign reserve is the balance after foreign currency liabilities are deducted from gross foreign currencies reserves.

The report, according to analysts comes as Nigeria is facing forex shortages leading to the depreciation of the naira.

The government said it’s addressing the problem through various monetary measures, one of which is last week’s agreement between the NNPCL and Afrexim Bank for a $3 billion emergency loan to stabilize the forex market.

The financial service firm had a few days ago noted in a report that Nigeria’s foreign reserve is lower than previously estimated.

The American multinational financial services firm noted in an August 17 report that Nigeria’s net FX reserves are significantly lower than previously estimated.

According to figures provided by the Central Bank of Nigeria, CBN, Nigeria’s gross foreign reserves stood at $36.61 billion as of the end of last year.

It has dropped further to less than $34 billion as of August this year, the apex bank said in a report.

But commenting, JP Morgan disclosed in the report that what Nigeria actually has in her foreign reserves after foreign liabilities have been deducted is $3.7 billion.

“We estimate that CBN’s net FX reserves were around $3.7 billion at the end of last year, from US$14.0 billion at end-2021,” the firm said.

JP Morgan provides its estimates on how it arrives at the figure, saying the local forex market will continue to be under pressure, it, however, hinted that the CBN can still source forex from different areas to stabilize the market.

“FX forwards ($6.84 billion), securities lending ($5.5 billion) and currency swaps ($21.3 billion); and estimating currency swaps by backing out FX forwards and outstanding OTC Futures balances from an overall aggregate published in the financial accounts,” the report said.

“Nigeria’s exchange rate market remains fragmented. Since the adjustment of USD/NGN at the Investors and Exporters window a few weeks ago, interbank FX liquidity has not improved as much as anticipated, partly due to the re-introduction of de-facto controls limiting local trades and loose monetary policy conditions.”

Last Wednesday,  the NNPC Limited secured a $3 billion Emergency Crude Repayment Loan from African Export-Import (AFREXIM) Bank to stabiles the naira.

“The NNPC Ltd. and Afrexim Bank have jointly signed a commitment letter and Termsheet for an emergency $3 billion crude oil repayment loan,” NNPC said in a terse statement.

“The signing, which took place today at the bank’s headquarters in Cairo, Egypt, will provide some immediate disbursement that will enable the NNPC Ltd. to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market.”