Naira has lost an essential source of support after the central bank’s long-delayed financial statements revealed that effective foreign-exchange reserves at its disposal were much lower than previously disclosed.

The accounts published last week showed a previously undisclosed $7.5 billion in transactions with JP Morgan Chase & Co. and Goldman Sachs Group Inc. In addition, it detailed an exposure in foreign-currency forward contracts of almost $7 billion. The central bank also showed it vastly exceeded the limit placed on its lending to the government.

The Nigerian currency had already been plunging since the regulator allowed it to trade more freely in June. The issue with the net reserves shown in the report last week means the central bank’s capacity to defend the naira is limited, said Adetilewa Adebajo, chief executive of Lagos-based CFG Advisory.

“Given the state of the CBN balance sheet and the fact that the naira is already at 945 to the dollar on the parallel market, the road to 1,000 looks unhindered,” Adebajo said.

Acting central bank Governor Folashodun Shonubi warned those betting against the Nigerian currency to take care, though he did not detail what actions the authorities had in mind.

“Sooner rather than later, the speculators should be careful, because we believe the things we’re doing when they come to fruition may result in significant losses to them,” he told reporters in Abuja, the capital, on Monday.

He did not take questions and his remarks echoed the tone of Wale Edun, monetary policy adviser to President Bola Tinubu, who cautioned on Aug. 1 that speculators could get hurt.

The move to a more liberal exchange system was designed to remove obstacles which had deterred foreign investors, but the expected jump in inflows has been slow in coming.

Parallel Market

The central bank has also been unable to increase supply significantly through its interventions in the official window where the currency is traded, driving demand to an unauthorized market where the dollar is about 18% more expensive.

Goldman and JP Morgan declined to comment. Officials at the central bank did not respond to requests for comment Friday.

The recently released accounts raise concerns about the sufficiency of the nation’s external reserves to support liquidity in the foreign exchange market, said Ayodeji Dawodu, director ‑ CEEMEA fixed income at BancTrust & Co.

“The local currency will remain under pressure in the coming months unless the central bank increases its intervention in the market and/or incentivises foreign portfolio inflows,” Dawodu said.

Real Rates

To be sure, the bank loans revealed in the statement were “received in exchange for foreign currency securities pledged by the central bank and were intended to support its liquidity position,” Dawodu said in a report.

While the central bank has reported more than $30 billion in reserves as of the end of 2022, subtracting obligations revealed in the report means it has a net reserve of just $17 billion, RMB Bank said in a note on Monday.

Nigeria dollar bonds have come under pressure since the revelations about the central bank reserves. The note maturing in 2051 has slid about 4 cents in the past two sessions to 73 cents on the dollar as of 2:53 pm in London, the lowest in a month.

To boost inflows, the central will have to raise interest rates and consider an International Monetary Fund program, said Charles Robertson, head of macro strategy at Frontier Investment Management Partners.

“Nigeria’s interest rates remain deeply negative in real terms – the most negative in Africa among all the countries we follow, and second only to Argentina in the world,” Robertson said.