The Nigerian government through the Federal Ministry of Finance (FMF), Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) has frown at the decision by J. P. Morgan to phase out Nigeria from its Government Bond Index for Emerging Markets (GBI-EM). According to a recent joint press release, the government and its agencies said that they respect the right of the J.P. Morgan to make this decision, but would like to strongly disagree with the premise and conclusions upon which the decision rests.
“It would be recalled that Nigeria 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, dedicated Market Makers and diverse investors. However, in January 2015, J.P. Morgan placed Nigeria on an Index Watch as a result of their concerns in the operations of our Foreign Exchange (FX) Market, namely: 1) lack of liquidity for transactions; 2) lack of transparency in the determination of the exchange rate; and 3) lack of a fully functional two-way FX Market,” it statement.
The government said that in its continuous bid to strengthen the Nigerian financial market and enhance the country’s status as a preferred destination for investors, it took measures to improve the market.
“Despite the fact that oil prices have fallen by nearly 60 percent in one year, which should expectedly reduce the amount of liquidity in the market, the CBN ensured that all genuine and effective demand were met, especially those from foreign investors. On transparency, the CBN mandated that all FX transactions were posted online in the Reuters Trading Platform so that all stakeholders can easily verify all transactions in the market. In addition, the Official FX Window at the CBN was closed to ensure a level-playing field in the pricing of foreign exchange.
Government expressed concerns that despite these positive outcomes, the J. P. Morgan would prefer that Nigeria removes this rule; even though it is obvious that doing so would lead to an indeterminate depreciation of the Naira. It explained that with dwindling oil prices, an order-based two-way market best serves Nigeria’s interest at the moment.
“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,” the statement added.
By Pita Ochai