CBN castigates JP Morgan, says its estimate of Nigeria’s FX reserve is misleading
The Central Bank of Nigeria (CBN) has criticized JP Morgan’s recent estimate of Nigeria’s foreign exchange reserves, calling it a misrepresentation.
CBN’s Director of the Monetary Policy Department, Hassan Mahmud, made the apex bank’s feeling on the issue known while speaking with AIT, stressing that fluctuations, liabilities, and encumbrances to the reserves were only natural and normal.
Mahmud noted that the CBN did not panic over JP Morgan’s numbers, indicating that the central bank had its Befin-house assessment of the situation.
He said: “We also read the JP Morgan numbers in-house and we didn’t panic over that. That’s not the first time we see people, institutions reeling out numbers; they must have their intentions to do that, whether to rouse market sentiments or to mislead the public.”
“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.”
Mahmud also highlighted the concept of outstanding liabilities and their impact on the reported net balance.
He argued that reducing the balance to account for the liability would not accurately reflect the individual’s current financial standing, as it ignores the future inflows that can cover the liability.
“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 or I took a facility of $13 million, I know I will get $17 million in the next three years so I can 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.”
It would be recalled last week, JP Morgan had estimated Nigeria’s net FX Reserve to be around $3.7 billion much lower than the net figure of $14 billion reported at the end of 2021 by the CBN.
The global finance giant disclosed this in its latest report on Nigeria titled “Nigeria: Reform pause rather than fatigue”.
The bank noted that the lower-than-reported FX reserve is the result of larger currency swaps and borrowings against the FX reserve.
