JP Morgan, one of Nigeria’s asset managers, has estimated that the country’s net forex reserves currently stands at $3.7 billion, significantly lower than prior estimates.
In a report titled, Nigeria: Reform pause rather than fatigue”, the financial institution where Nigeria’s oil sales are banked, said that the low funds was due to the larger-than-expected currency swaps and borrowings against existing reserves.
Claims on the Federal Government under former President Muhammadu Buhari, rose from N2.7 trillion in 2015 to N30.1 trillion in 2023.
It said structural BoP deficit means authorities need to implement reforms that will attract steady external funding, but that in the near term, the Central Bank of Nigeria (CBN) has the ability to source FX at commercial and semi-commercial rates.
It also said that the stall in reform momentum and lower net FX reserves unnerve markets, but that it remains cautiously optimistic of Nigeria “Nigeria’s sovereign bond prices declined by 2.5-5pts across the curve since the Central Bank of Nigeria published its audited financial accounts late last week.
Also, the decision to freeze petrol prices at current levels resulted in concerns that fuel subsidies may have been reinstated, further weighing on asset prices.
That said, the announcement of a cabinet which appointed technocrats in key positions, such as the Ministry of Finance may slow the eurobond price decline in the near term, even if a likely slower pace of reform implementation could limit bond upside from here.
“Although we expect inflation momentum to start downshifting from 4Q, headline inflation will still remain elevated, particularly on higher food costs.
The president’s decision to keep a cap on petrol prices is likely to provide some relief but the exchange rate is likely to remain on a depreciating path and put further pressure on prices, with the impact more broad-based,” the report stated.
Reacting to JP Morgan’s report, a financial expert, Kalu Aja, said former President Muhammadu Buhari killed Nigeria’s economy.
He also advised that the coordinating minister of the economy should call a press conference and speak because the markets need confidence from ‘an adult that understands a balance sheet.’
He also said the naira falling because the CBN has not received the necessary inflow since they have not floated.
“President Buhari killed the economy of Nigeria. Period. The coordinating minister of the economy should call a press conference and speak..The markets need confidence from an adult that understands a balance sheet.
This JP Morgan report creates serious pressure on Nigeria’s ability to maintain a “strong” naira, and I fear it takes the winds away from the sails of that NNPC $3 billion. Nigerians want to know this, is the Naira safe to hold?
“At the moment, 46 items are banned and price controls are still in effect and that in response, Nigerians have moved to P2P. The question is, why then fund Bureau de Change (BDC)? Why give your scarce
dollars to BDCs, rather than let BDC go compete with P2P?
“CBN has not cleared the forex backlog. Remember my personal “Emirates Air- lines” indicator; it’s simple if you want to know if the CBN reforms are working, then watch if Emirates Airlines return to Nigeria.
“Nigerians now don’t trust the naira. They are taking out their naira deposits and holding a portion in dollars. Thus what the CBN calls speculators are actually rational Nigerians protecting their hard-earned cash.
Schools open in September, so the middle class and Japa are demanding more dollars than usual,” he said.
