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Wednesday, 23 August 2023 10:58

WHAT JP MORGAN IS SAYING ABOUT NIGERIA FOREIGN RESERVE

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Nigeria's foreign exchange reserve is thought to be closer to $3.7 billion than the previously claimed $30 billion, according to global financial services company JP Morgan. This information was provided by the bank in its most recent report on Nigeria, "Nigeria: Reform pause rather than fatigue." The bank stated that greater currency swaps and borrowings against the FX reserve are to blame for the lower-than-reported FX reserve. "Based on partial information from the audited financial accounts, we estimate that CBN's net FX reserves were around US$3.7 billion at the end of last year, down from US$14.0 billion at the end of 2021," it read.

 

Assumptions made in calculating the $3.7 billion FX reserve The bank emphasized that to get at the $3.7 billion, it had to make various assumptions that, if proven erroneous, would have changed the amount in its calculations. These assumptions are stated in their report as follows: "An addition of US$5.0bn in IMF Special Drawing Rights (SDR) to external reserves 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." "adjusting gross external reserves with three key FX liability lines, namely FX forwards ($6.64 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"

 The research did point out that the CBN is still able to resist the strain brought on by the low foreign exchange reserve, particularly as the CBN and commercial banks would continue to earn from their swap agreements as interest rates rise.  To strengthen the country's foreign currency reserve, the NNPCL also had to borrow $3 billion from the Afrexim bank. This move is intended to increase exchange market liquidity. Many people are surprised by JP Morgan's assessment because Nairametrics revealed that as of June 2023, the country's foreign exchange reserve was $34.1 billion.

JP Morgan remains upbeat. The study also highlighted that despite the recent slowdown in reform momentum, it remained cautiously hopeful. Recall that President Tinubu had to hold down on key changes, including the abolition of fuel subsidies, despite a rapid start to his office. Nigeria's government debt declines The President stated last week that there won't be a rise in fuel costs, contradicting the tenets of a free market.

 

His declaration caused panic among investors in the financial sector, who sold their holdings in Nigerian bonds out of concern that the administration was returning to the fuel subsidy period. Following the President's recent policy remarks, the price of Nigerian government bonds fell by 2.5 to 5 points throughout the curve. To achieve 28% in headline inflation On the heels of increased food prices and other effects of the President's measures, the bank also forecasts that overall inflation will reach 28% by the end of the year.

 

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