Nigeria decries JP Morgan’s index ejection verdict

By bne IntelliNews September 9, 2015

Nigerian authorities expressed strong disagreement with JP Morgan’s decision to expel it from its widely followed Government Bond Index-Emerging Markets (GBI-EM), saying that the investment bank wanted to remove a forex market rule that helped eliminate speculators and maintain the stability of the naira amid heightened global volatility.

After having contemplated over Nigeria’s expulsion for about eight months, JP Morgan said on September 8 it will start phasing out Nigeria from GBI-EM this month and will completely remove it by the end of October. This will force funds tracking naira-denominated government bonds to sell them, potentially resulting in large capital outflows and higher borrowing costs for the country, already hit by the plunge in oil prices.

JP Morgan had warned Nigeria that it should improve FX market liquidity and transparency, as well as create a fully functional two-way FX market to stay in the index. It waited a few months in order to assess the effects from the change in the country’s political leadership at end-May.

However, the bank assessed that “foreign investors who track the GBI-EM series continue to face challenges and uncertainty while transacting in the naira due to the lack of a fully functional two-way FX market and limited transparency".

In a rare joint statement, the Central Bank of Nigeria (CBN), the Federal Ministry of Finance, and the Debt Management Office (DMO) denounced JP Morgan’s decision, saying liquidity and transparency had been improved through various measures, including the closure of CBN’s Official FX Window and online disclosure of all FX transactions in the Reuters Trading Platform. The authorities rejected JP Morgan’s judgment of a lack of a fully functional two-way FX market.

“Given the high propensity for speculation, round tripping, and rent-seeking in the market, it became imperative that participants are not allowed to simply trade currencies but are only in the market to fulfil genuine customer demands to pay for eligible imports and other transactions. In the light of this, we introduced an order-based, two-way FX market, which has resulted in the stability of the exchange rate in the interbank market over the past 7 months and largely eliminated speculators from the market,” the statement reads.

If the rule is removed, as JP Morgan had recommended, this would lead to an “indeterminate” depreciation of the naira, the authorities claim. Before devaluing the naira and pegging it at a fixed rate against the dollar, the central bank tried to defend it through dollar sales, which led to a significant depletion of its foreign exchange reserves.

Meanwhile, the authorities ensured that “the market for FGN [Federal Government of Nigeria] bonds remains strong and active due primarily to the strength and diversity of the domestic investor base”.

JPMorgan added Nigeria to its local currency government bond index in October 2012, making it the second African country after South Africa to be included in a widely tracked global index. In August 2014, it included Nigeria's 2024 bond in the GBI-EM, in addition to the 2014, 2019 and 2022 bonds that were added in 2012.

Foreign holdings of FGN bonds are below $2.75bn, according to Samir Gadio, the head of Africa strategy at Standard Chartered Bank, quoted by Reuters. This compares to some $8bn in September 2014.

Nigeria still remains in Barclays’ Emerging Markets Local Currency Government Index with 10 FGN bond issues.

Related Articles

IMF slashes South Africa’s 2016 growth outlook to 0.7%

The International Monetary Fund (IMF) has lowered sharply its 2016 GDP growth forecast for South Africa to just 0.7% from 1.3% anticipated in October, its World Economic Outlook (WEO) update released ... more

MTN Nigerian fine raised back to $5.2bn, court refuses to freeze company bank accounts

The record fine, imposed on South Africa-based telecoms group MTN by the Nigerian Communications Commission (NCC) has been raised back to $5.2bn, publications in local media revealed. The ... more

SA IT services firm EOH enters four new markets

South African IT services company EOH has continued its expansion drive through the acquisition of majority stakes in six ICT companies in four new territories, it said in a bourse filing on January ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.