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30% of Nigeria’s external reserves are bank currency swaps: Fitch

Global credit rating agency, Fitch, has estimated that approximately 30% of Nigeria’s external reserves are made up of bank foreign exchange (FX) swaps.

This disclosure underscores current uncertainties regarding the country’s net foreign exchange reserves, exacerbated by opaque inflows amounting to nearly $32 billion in foreign exchange forward contracts, over-the-counter futures and foreign exchange swaps listed as off-balance sheet commitments in the Central Bank of Nigeria (CBN). ) consolidated financial statements for the year 2022.

He said:
  • “Uncertainty continues over the net foreign exchange reserve position, with a particular lack of clarity over around $32 billion of ‘currency forwards, OTC futures and currency swaps’ recorded as an off-balance sheet ‘commitment’ in the CBN latest consolidated financial statement for 2022. .
  • “Fitch estimates that around 30% of Nigeria’s reserves are made up of bank currency swaps, although we expect the majority of these to continue to be rolled over.”

Uncertainty in Nigeria’s foreign exchange reserves

In its latest credit outlook for the country, Fitch noted that the lack of clarity over the precise size and composition of Nigeria’s foreign exchange reserves remains a major constraint on the nation’s sovereign credit profile.

Despite these concerns, Fitch anticipates that most bank FX swaps will continue to roll over, which could provide some temporary stability in reserve management.

Other findings in the report indicate a recent increase in non-resident inflows into Nigeria, driven by greater formalization of foreign exchange activities and tighter monetary policy measures.

The news continues after this announcement.






The news continues after this announcement.




This change has caused a notable appreciation of the Naira at the official foreign exchange window, following a substantial depreciation of 71% from June 2023 to mid-March 2024.

Despite this recovery, Fitch stated that the exchange rate remains volatile and continues to pose risks to economic stability.

Further fall in Nigeria’s foreign exchange reserves

The report also notes that Nigeria’s gross foreign exchange reserves have seen a decline, falling from $34.4 billion in mid-March to $32.2 billion at the end of April.

Fitch noted that the reduction partly reflects debt payments and foreign currency sales to currency exchange operators to shore up the currency.

This sentiment was also shared by CBN Governor Yemi Cardoso who recently said the decline in reserves was mainly due to debt payments and other standard financial obligations, rather than efforts to defend the naira.

Looking ahead, Fitch projects a stable current account surplus, averaging 0.5% of Gross Domestic Product (GDP) for 2024-2025, supported by an expected modest increase in oil production and remittances.

However, foreign exchange reserves are projected to decline to cover only 4.2 months of current external payments by the end of 2024, aligning with the ‘B’ median.

He pointed:
  • “Gross foreign exchange reserves fell to $32.2 billion at the end of April, from a high of $34.4 billion in mid-March, partly reflecting repayment of existing debt obligations and foreign exchange sales to BDCs.” to back the currency.
  • “Fitch projects a virtually stable current account surplus, averaging 0.5% of GDP in 2024-2025, supported by a modest increase in oil production and remittances.
  • “We forecast foreign exchange reserves to fall to 4.2 months of current external payments at the end of 2024 (‘B’ median 4.2), from 4.4 months at the end of 2023.”

What you should know

  • Nairametrics earlier reported that a member of the CBN Monetary Policy Committee (MPC), Bamidele AG Amoo, said the decline in Nigeria’s foreign exchange (FX) reserves was mainly due to foreign exchange swap transactions.
  • This view was also supported by another MPC member, Lydia Shehu Jafiya, who stated that “As of March 19, 2024, external reserves amounted to US$32.87 billion compared to US$33.68 billion in the previous month, mainly due to currency swap transactions cleared in the period under review.”
  • Nairametrics also reported that Nigeria’s foreign exchange (FX) reserves maintained a month-long streak of declines, hitting a new low of $32.12 billion on April 17, 2024. Reserves fell $2.33 billion dollars in 31 days, from $34.45 billion on March 18, 2024, marking the lowest level since September 20, 2017, when it was $32.08 billion.
  • However, further checks by Nairametrics show that foreign exchange reserves are slowly rising, increasing by $178 million in a marginal recovery after a decline of more than a month.