Nigeria faults J.P. Morgan’s de-listing of its bonds from emerging markets


 The Federal Government on Tuesday faulted in strong terms the decision by J. P. Morgan, the global financial services firm, to de-list Nigeria from its Government Bond Index for Emerging Markets (GBI-EM).

Financial analysts say removing Nigeria from its emerging market indices is a “huge blow to the country’s prestige” in the global market.

In a joint statement by the Federal Ministry of Finance, FMF; Central Bank of Nigeria, CBN, and the Debt Management Office, DMO, the Federal Government strongly disagreed with the premise and conclusions upon which J. P. Morgan based its decision on the issue.

Nigeria, the statement said, was included in the index in October 2012 based on the existence of an active domestic market for FGN Bonds supported by a two-Way quote system, a dedicated market makers and diverse investors.

However, it said in January 2015, J.P.Morgan decided to place Nigeria on an Index Watch as a result of concerns in the operations of the country’s Foreign Exchange, FX, Market as a result of a number of issues.

These include lack of liquidity for transactions; lack of transparency in the determination of the exchange rate; and lack of a fully functional two-way FX Market.

To ensure that the country’s financial market continued to be strengthened, and the country’s status as a preferred destination for investors enhanced, the CBN said it decided to adopt measures to improve the market.

In spite of the decline in oil prices at the international market by almost 60 percent in one year, and the attendant negative impact on the country’s economy, particularly the drastic reduction in the amount of liquidity in the market, the CBN said it still managed to ensure that all genuine and effective demands were met, especially those from foreign investors.

To ensure transparency in all transaction, the CBN said it mandated that all FX transactions be posted online in the Reuters Trading Platform to ensure that all stakeholders easily verified their status in the market.

Also, it said the Official FX Window at the CBN was closed to ensure a level-playing field for all in the pricing of foreign exchange.

Similarly, the DMO also took steps to ensure that a functional two-way FX market that was already in existence in the country was strengthened.

It however noted that given the high propensity for speculation, round tripping, and rent-seeking in the market, it became imperative that participants were not allowed to simply trade in currencies, except in the market, to fulfill genuine customers’ demands to pay for eligible imports and other transactions.

Consequently, the DMO said it became necessary that an order-based, two-way FX market be introduced, which resulted in the stability of the exchange rate in the inter-bank market over the past seven months, by eliminating speculators from the FX market.

Wondering why J. P. Morgan would still go ahead with its latest decision against Nigeria, despite the positive outcomes from the CBN interventions to stabilize the FX market, the DMO said it smacked of insensitivity, as it was obvious that the rating agency’s preference would lead to an “indeterminate depreciation of the Naira.”

“With dwindling oil prices, we believe that an order-based two-way market best serves Nigeria’s interest at the moment,” the joint statement said.

“While we would continue to ensure that there is liquidity and transparency in the market, we would like to note that the market for FGN Bonds remains strong and active due primarily to the strength and diversity of the domestic investor base.

“For the avoidance of doubt, the Federal Government sees Nigeria and the interest of Nigerians as paramount. It will therefore only continue to take economic decisions that will impact positively in the lives of all Nigerians.”


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