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The Central Bank of Nigeria (CBN) has criticized JP Morgan’s recent assessment of Nigeria’s foreign exchange reserves, deeming it inaccurate.
Hassan Mahmud, Director of the Monetary Policy Department at CBN, addressed the matter during a conversation with Nancy Umeh on AIT’s Moneyline business show.
He emphasized that fluctuations, liabilities, and encumbrances affecting the reserves were a normal part of the financial landscape.
CBN’s Perspective on the Numbers
Mahmud underscored that the CBN remained composed despite JP Morgan’s figures, clarifying that the central bank had its internal evaluation of the situation. He stated:
“We reviewed the JP Morgan figures internally and were not alarmed by them. This is not the first time we’ve encountered institutions releasing numbers; they may have their motivations, whether to influence market sentiment or mislead the public.” “However, the central bank has been committed to transparency. I must say, those numbers are quite amusing because, first, reserves, like any account balance, are dynamic; there are ongoing changes that impact them at any given time.” “Second, even when you have outstanding liabilities, you don’t value these liabilities based on present market conditions and then declare it as your net balance.” Clarification on Liabilities and Balances Mahmud also delved into the concept of outstanding liabilities and their influence on reported net balances.
He argued that reducing the balance to account for the liability would not accurately portray the individual’s current financial position, as it disregards future inflows that could cover the liability.
“Imagine I have $20 million in my account and I owe someone $13 million, payable in 2027; it’s not accurate to come in 2023 and deduct that $13 million, declaring that my money is now $7 million.” “Presently, I have $20 million. I did take a $13 million facility, knowing I’ll receive $17 million in the next three years to repay you. So, telling me that my balance is $7 million and I can’t repay in three years is distorting the context.” “I don’t know the methodology they employed in their calculations, and I lack information on that, but we did observe those numbers they released.” Background Information JP Morgan estimated Nigeria’s net FX Reserve to be approximately $3.7 billion, a significantly lower figure than the reported net amount of $14 billion at the end of 2021.
The multinational financial institution shared this insight in its latest report on Nigeria titled “Nigeria: Reform pause rather than fatigue.”
The bank highlighted that the lower reported FX reserve is a consequence of larger currency swaps and borrowings linked to the FX reserve.
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