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JP Morgan says Nigeria’s net FX reserves likely dropped to $3.7bn in 2022



In its recent report titled ‘Nigeria: Reform pause rather than fatigue,’ renowned American financial services company JP Morgan has projected that Nigeria’s net foreign exchange (FX) reserves declined to approximately $3.7 billion by the conclusion of 2022. This figure, as stated by the firm, marks a significant decrease from previous assessments. The drop is attributed to larger-than-anticipated currency swaps and the utilization of existing reserves for borrowing.

The report highlights that, based on available data from audited financial accounts, JP Morgan’s estimation places the Central Bank of Nigeria’s (CBN) net FX reserves at roughly $3.7 billion at the conclusion of the previous year. This figure stands in stark contrast to the $14.0 billion recorded at the conclusion of 2021.

It is important to note that the firm’s estimation of $3.7 billion is contingent upon certain assumptions, the accuracy of which could potentially alter the projected value.

“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,” the report further reads.

(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.”

JP Morgan, however, said that although low net FX reserves mean continued FX market pressures, the CBN still has the ability to source FX at commercial and semi-commercial rates.

“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 adds.

“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.”


JP Morgan said it expected that headline inflation will still remain elevated, particularly due to higher food costs.

“We believe July’s inflation print is early evidence of the impact of the fiscal and FX reforms which are likely to continue pushing headline inflation higher over the coming months,” JP Morgan said in its report.

“Higher parallel market rates in recent weeks are also likely to have an impact on August’s inflation reading and will be most notable in higher food and core prices. The core inflation measure (excluding food and energy costs) rose by 20.5% in July, from 20.1% recorded in June. We now see headline inflation rising towards 28%oya by year-end.”

The firm said President Bola Tinubu’s decision to keep a cap on petrol prices is likely to provide some relief but the exchange rate is likely to remain on a depreciating path and put further pressure on prices.