According to a report from JP Morgan, the Federal Government of Nigeria could earn up to $17 billion by selling down its stake in joint-venture oil and gas assets. This projection comes as the government aims to increase foreign exchange earnings and bolster external reserves to alleviate pressure on the country’s foreign exchange market.
JP Morgan’s report highlights that the Central Bank of Nigeria’s net foreign exchange reserves were approximately $3.7 billion at the end of 2022, a significant decrease from the $14 billion reported at the end of 2021. The bank estimates this decline based on audited financial accounts and assumptions about factors affecting the foreign exchange reserves.
The report also suggests that the government’s plan to sell down its stake in joint-venture oil and gas assets could generate substantial revenue, potentially reaching up to $17 billion. This move is seen as a strategy to boost foreign exchange earnings and support external reserves.
However, the report acknowledges that Nigeria’s low net foreign exchange reserves could continue to exert pressure on the foreign exchange market. Despite this, the Central Bank of Nigeria may still be able to source foreign exchange at commercial and semi-commercial rates.
The report also discusses the recently announced $3 billion loan to the Nigerian National Petroleum Corporation (NNPC), which could help improve foreign exchange liquidity in the market. The NNPC would sell the acquired dollars to the central bank and remit naira proceeds to the government as upfront payments for oil revenues and taxes.
JP Morgan warns that the private sector’s large external financing needs will continue to contribute to forex pressures. The report suggests that significant reforms are required to attract foreign direct investment and stabilize the country’s foreign exchange reserves.
The report concludes by projecting that Nigeria’s inflation rate could rise to 28% by the end of 2023. It also anticipates further depreciation of the naira despite efforts by the Central Bank of Nigeria to stabilize the foreign exchange market.