Nigeria could rake in a whopping $17 billion if it could divest its stake in most joint joint venture oil assets, this is according to the American multinational financial services firm, JP Morgan. This revelation came against the backdrop of the nation’s policy direction to increase foreign exchange earnings and stabilize the demand for forex.
In line with Nigeria’s efforts to alleviate foreign exchange pressure and enhance its external reserves, JP Morgan has projected that the Federal Government could generate up to $17 billion through the sale of its stake in various joint-ventures oil and assets.
The US bank’s analysis is based on a report titled ‘Nigeria: Reform pause rather than fatigue (CBN’s financial accounts open a can of worms)’.
Nigeria’s FX reserves drop to $3.7 billion in 2022
The bank highlighted that Nigeria’s Central Bank net FX reserves stood at approximately $3.7 billion at the close of 2022, dropping significantly from the $14 billion recorded at the end of 2021.
This estimation is predicated on various assumptions made from the audited financial accounts, which, if proven incorrect, could substantially alter the situation.
JP Morgan indicated that the sale of joint-venture oil and gas assets, as recommended by the President’s policy advisory council, could yield considerable financial relief.
This suggestion could result in the infusion of around $17 billion into the nation’s coffers.
In the near term, the recently announced $3 billion loan to the Nigerian National Petroleum Corporation (NNPC) could enhance forex liquidity conditions by enabling the oil company to sell dollars to the Central Bank (CBN) and remit naira proceeds as upfront payments for oil revenues and taxes.
Nevertheless, the bank cautioned that despite these measures, the private sector’s substantial external financing needs would sustain forex pressures.
Additionally, the bank pointed out that a structural balance of payments deficit and a less favorable starting point for net FX reserves than previously anticipated could impede the government’s transition to a more flexible exchange rate regime.
JP Morgan’s report also predicted a spike in Nigeria’s inflation rate, projecting it to reach 28% by the end of 2023.
This estimate is higher by three percentage points than the World Bank’s projection of 25% for the same period, primarily due to the removal of petrol subsidies. However, the World Bank foresees a decrease in headline inflation by the first quarter of 2024.
JP Morgan based its analysis on the effects of fuel subsidy removal, forex liquidity, and the recently published financial records of the CBN.
The bank cited the doubling of petrol prices and a 40% depreciation of the naira against the dollar in the official market as contributing factors to the increase in inflation, which stood at 24.08% in July.