Nigeria’s Net Foreign Reserves Dipped to $3.7 Billion by the End of 2022 – JP Morgan

According to a report by JP Morgan, a prominent American multinational financial services corporation, Nigeria’s net foreign exchange (FX) reserves saw a decline, reaching $3.7 billion by the conclusion of 2022.

The disclosure is featured in the firm’s recent publication titled ‘Nigeria: Reform pause rather than fatigue’.

Gross FX reserves denote the aggregate foreign currency reserves under the government’s possession. Net FX reserves are calculated by subtracting foreign currency liabilities from the gross foreign currency reserves.

As per data from the Central Bank of Nigeria (CBN), the country’s gross FX reserves tallied at $36.61 billion as of the close of 2022.

The JP Morgan report elucidated that the $3.7 billion figure represents a significant decrease from earlier estimates, a trend attributed to currency swaps larger than anticipated and borrowing against pre-existing reserves.

“Based on partial information from the audited financial accounts, we estimate that CBN’s net FX reserves were around $3.7 billion at the end of last year, from $14.0 billion at end-2021,” the report detailed.

The firm acknowledged that this estimate of $3.7 billion was reached through several assumptions, and any deviations from these assumptions could alter the projected value.

“In arriving at said estimate we make a few assumptions which if incorrect would substantially change the picture,” the report further elaborated.

Despite the implications of low net FX reserves on persistent FX market pressures, JP Morgan indicated that the Central Bank of Nigeria still maintains the capacity to obtain 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 some time, albeit in smaller sizes and arguably more punitive rates,” the report concluded.