CBN loans from foreign banks may cost Nigeria 40% of foreign reserves

Africa’s biggest economy is battling its worst economic turmoil in decades as the Central Bank of Nigeria’s (CBN) debt to some foreign banks may cost Nigeria 40.7 percent of its entire foreign reserves currently standing at $34.1 billion.

Data sourced from Nigeria’s apex bank 2022 report showed the CBN owes Goldman Sachs $500 million, JP Morgan $7 billion in securities lending, and another $6.3 billion owned in foreign currency forwards which are forex obligations it needs to make to foreign investors.

BusinessDay calculations showed an ability to meet the above obligations due to FX shortages might cost Nigeria 40.7 percent of its $34.1billion foreign reserves.

Experts who spoke to BusinessDay said the above development has caused distrust about Nigeria’s current external reserves despite the CBN delivering a much-needed reform in floating the currency in June.

“Senior treasury officials from banks and portfolio managers are telling me that they don’t trust the numbers the CBN is stating as the official foreign reserves position,” Kelvin Emmanuel, CEO at Dairy Hills Ltd said.

“And they believe that this is contributing to the apex bank’s inability to clear FX backlogs up to date,” he added.

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Goke Adetoyinbo, an analyst at CSL Stockbrokers Limited said the CBN has put Africa’s biggest economy in a very precarious state, and “the whole problem is stern from its monetary policy and trying to achieve more than its capacity”.

“CBN has little or nothing to defend its reserve, the only way out is through effective fiscal policy and that will be through aggressive taxation,” Adetoyinbo said.

Mustapha Umaru, an equity research analyst at CSL Stockbrokers Limited said the latest CBN report showed the future of Nigeria’s economy looks gloomy.

“There needs to be an aggressive drive to boost the revenue, and but it’s not only through aggressive taxation but effective taxation,” Umaru said.

He added, “There is a need for fiscal policy to improve non-oil export so that FX can come in”.

Africa’s largest economy’s external reserves by virtue of statute are segregated into three distinctive portions, namely the CBN, the Federal Government of Nigeria (FGN) and the Federation reflecting ownership of the reserves.

The Central Bank receives foreign exchange inflows from crude oil sales and other sources of revenue on behalf of the government. Such proceeds are purchased by the Bank and the Naira equivalent is credited to the Federation account.

These proceeds are shared each month, in accordance with the constitution and the existing revenue-sharing formula. The monetized foreign exchange, thus, belongs to the CBN. It is from this portion of the reserves that the Bank conducts its monetary policy and defends the value of the Naira.