LAGOS — JP Morgan has threatened to remove
Nigeria from its Government Bond Index (GBI-EM)
by the year-end unless the Central Bank of
Nigeria, CBN, restores liquidity to foreign
exchange market to allow foreign investors
tracking the benchmark to transact with minimal
hurdles.
The bank said, weekend, it had extended the
deadline to eject Nigeria by another six months to
take into account the arrival of President
Muhammadu Buhari.
Nigeria held closely-fought presidential elections
in March, in which opposition leader Buhari
defeated incumbent President Goodluck Jonathan
in the country’s first transition of power through
the ballot box.
JPMorgan, which runs the most commonly used
emerging debt indexes, placed Nigeria on a
negative index watch in January and then said it
would assess its place on the index over a three
to five months period.
“Nigeria’s status in the GBI-EM series will be
finalized in the coming months but no later than
year-end,” JPMorgan said.
Implications
Removal from the index would force funds
tracking it to sell Nigerian bonds from their
portfolios, potentially resulting in significant
capital outflows. This in turn would raise
borrowing costs for Africa’s largest economy,
already suffering from a sharp drop revenue
following a plunged in oil prices.
Nigeria’s forex and bond markets have come
under pressure after the price of oil, Nigeria’s
main export, plunged. In response, the central
bank fixed the exchange rate in February after
devaluing the naira last year and tightened
trading rules to curb speculation. The naira has
lost 8.5 percent this year.
“If we are unable to verify these factors, a review
of Nigeria’s status within the benchmark for
removal will be triggered,” it said in report, adding
that the factors included a liquid currency market.
Analysts did not expect JPMorgan to remove
Nigeria.
JPMorgan added Nigeria to the widely followed
index in 2012, when liquidity was improving,
making it only the second African country after
South Africa to be included. It added Nigeria’s
2014, 2019, 2022 and 2024 bonds.
The bank said Nigeria continues to remain eligible
for the GBI-EM index, which has around $210
billion in assets under management benchmarked
to it, with a weight of 1.8 percent.
The central bank last week made a tiny
adjustment to its exchange rate peg to the dollar,
which one analyst said may indicate that it is
beginning to think.