The Central Bank of Nigeria (CBN) has responded to the analysis by JPMorgan, which estimates the actual worth of Nigeria’s foreign reserves as at December 2022 to be $3.7bn – far lower than the $37bn that the apex bank had published.
A statement made by Hassan Mahmud, director of monetary policy department, CBN, during his feature on Moneyline with Nancy, a programme on Africa Independent Television (AIT), on Wednesday – said the estimate was presented “out of context”.
JPMorgan said the estimate was done with a few assumptions, which if incorrect would substantially change the picture.
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It listed the assumptions as follows: (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; (ii) 11 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.
Countering the assumptions, Mahmoud said that fluctuations, liabilities, and encumbrances to the reserves were only natural and normal.
“We also read the JP Morgan numbers in-house and we didn’t panic over that. That’s not the first time we are seeing people, institutions reeling out numbers; they must have their intentions to do that, whether to rouse market sentiments, whether to mislead the public,” Mahmud said.
“But, the central bank has tried as much as possible to be transparent. What I will say about those numbers is that it is just funny in the sense that number one, reserves like any account balance, is a flow; there are changes that go within it at any particular time.
“Two, even if you have outstanding liabilities, you don’t mark the outstanding liabilities to market on a day and say this is your net balance.
“I can have $20 million in my account and I am owing someone maybe $13 million that is supposed to be paid in 2027; you can’t come in 2023 and say if I remove that $13 million, your money is $7 million or you are having $7 million.
“Now, I am not having $7 million, I am having $20 million. Because before I took a facility of $13 million, I knew in the next three years, I would get $17 million so I could pay you back.
“But for you to come and tell me that no, your balance is $7 million and you can’t pay back in three years; it’s just putting it out of context.
“I don’t know how they did their calculations and I don’t have any information about that, but we also saw those numbers that came out.”
JPMorgan’s estimate prompted a regression of gains made by the naira last week, following the $3bn loan the Nigerian National Petroleum Company Limited (NNPCL) secured from Afreximbank.
Mahmud mentioned that approximately 80 percent of the reserve funds are owned by the CBN. This ownership primarily serves to stabilize the local currency during periods of instability and to enhance the trust of foreign investors.
“We have the numbers there. The central bank’s reserves are on our bank net. Yes, the figure you see today may not be exactly to the last decimal point but you have that picture that you are seeing there,” the CBN official said.
“We have $33bn, there is IMF facility there, the SDR is also there, we have the JP Morgan numbers that you mentioned, we have forwards, they are all there.”
Financial analysts had called on the government to quickly issue a statement to avoid a potential negative FX market reaction to JPMorgan’s report.
In response to the call, Mahmud said it is ridiculous for us (CBN) to come to the public domain, whether the CBN governor or deputy governor, to speak on issues by JP Morgan.
“I don’t even know who said it in JP Morgan,” he added.
“I don’t want us to get to that level where we will be ridiculing ourselves as a sovereign or country because of a private investor that has its own motives for giving those numbers. It could also be that those numbers were quoted out of context.”