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.
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.
*Extends
deadline to eject Nigeria by 6 months
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