Now the explanation: “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, 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.
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.
They are both correct. JP Morgan is coming from the angle of TRUST while the apex bank is relying on accounting principles: ‘“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 [read $13m] million so I could pay you back.”
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The US bank is counting that you may not have that $13m to pay back. That is unfortunate, but not irrational, since you have been borrowing to pay previous debts, and the bank does think you may run out of capacity to borrow more. My Call: draw for the two debaters.
Comment on Feed
Comment 1: My call: the data provided by JP Morgan is a true and better representation of the actual worth. If the Apex bank wants to use the point that the liabilities will be paid in the future then we also need to see how income generated in the future will cover current and future liabilities.
My Response: Lol – I am laughing. Nigeria believes in wishes. The money will come; no need to ask.
Comment 2: Nigeria is just like a comedy show where people just make sarcastic statements on real issues.
Whether it’s the real asset or accounting principles, Nigeria is in trouble. Unfortunately, we’re not even making the right decisions to get back on track.
Comment 3: JP Morgan is absolutely correct ???. Being financially wreckless is nothing else but utter foolishness and amazing stupidity
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