Nigeria’s True FX Reserves Revealed in CBN’s Accounts—Cordros Securities
Leading financial market monitoring firm, Cordros Securities has averred that before now, there have been divergent opinions on the actual state of Nigeria’s FX reserves, given that the CBN only publishes the gross FX reserves without comprehensive information on FX liabilities. However, the CBN’s 2022 financial statement has now allowed us to analyse the country’s international FX liquidity position and net reserves using the IMF’s standardised methodology. The liquidity position has implications on the CBN’s ability to support the FX market comfortably and, by extension, the exchange rate. Therefore, in this report, we estimate the CBN’s liquidity position using standardised methodologies. We also assessed the current liquidity position’s possible implications and suggested some near-term solutions to prop up the FX reserve.
Liquid Reserves are about 35.0% of the Current Gross FX Reserves
As stated earlier, our estimate of Nigeria’s liquid FX reserves follows the IMF’s methodology and standardised definition of net international reserves. Precisely, the net international reserves of a central bank are the difference between reserve assets and liabilities. According to the IMF, reserve liabilities are all foreign exchange liabilities to residents and non-residents, including commitments to sell foreign exchange arising from derivatives (such as futures, forwards, swaps, and options) and all credit outstanding from the Fund. Also, the following are excluded from reserve assets: (1) any assets that are pledged, collateralized, or otherwise encumbered, (2) claims on residents, (3) claims in foreign exchange arising from derivatives in foreign currencies vis-a-vis domestic currency (such as futures, forwards, swaps, and options), (4) precious metals other than gold, (5) assets in nonconvertible currencies, and (6) illiquid assets.
Based on the methods above and using data from the CBN’s 2022 financial statement, table 1 represents our findings and estimates of (1) Nigeria’s international FX liquidity position and (2) net FX reserves as of the end of 2022. In line with the CBN’s guidance, NGN461.50/USD is the exchange rate we used in converting the naira balances to US dollars.
