Nigeria net forex reserves fall, inflation to worsen

Nigeria’s net external foreign exchange reserves fell to $3.7 billion in 2022 from $14 billion in 2021, JP Morgan said in a new report.

Nigeria’s central bank has been in the spotlight since President Bola Tinubu launched an investigation at the regulator early August after removing currency controls that had kept the naira artificially high, sending it almost 40% weaker to the dollar as a result.

Apart from foreign exchange availability, JP Morgan’s report also looks at other measures introduced by Tinubu, including eliminating fuel subsidies, which has spurred inflation, and the release of financial figures from 2016-2022 by the Central Bank of Nigeria (CBN) amid the ongoing probe.    

“Net FX reserves are significantly lower than previously estimated,” JP Morgan said in its latest report on Africa’s biggest economy titled ‘Nigeria: Reform pause rather than fatigue, CBN’s financial accounts open a can of worms’.   

“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, down from $14.0 billion at the end of 2021,” the largest US lender said.   

JP Morgan said the low net foreign exchange reserves meant the FX market would face continued market pressures, but added that the CBN could still source foreign exchange at commercial and semi-commercial rates.   

Last week the naira currency gained after the state oil firm NNPC secured a $3 billion loan to increase the supply of hard currency on the foreign exchange market.       

Prior to the announcement of the loan, the central bank had said it would take “significant” measures to calm the market.

In its audited accounts, the central bank revealed that it owes a total of $7.5 billion to JP Morgan and Goldman Sachs in loans.    

JP Morgan said in its report that the pace of Tinubu’s reforms would slow down, citing the impact on the population from rising inflation, which it forecast to hit 28% by year-end (now at 24%).

As part of wide-ranging reforms he says will boost economic growth, Tinubu also eliminated a petrol subsidy causing fuel prices to jump.

However despite its concerns the US bank said it was cautiously optimistic on Nigeria.

“We are cautiously optimistic on reforms but acknowledge near-term FX-related pressure,” JP Morgan said.

(Editing by Brinda Darasha; brinda.darasha@lseg.com)