JPMorgan Chase & Co had yesterday removed Nigeria’s bonds from its emerging-market bond indexes, citing lack of liquidity and currency restrictions – but Vice President Yemi Osinbajo reiterated that Nigeria won’t be changing her foreign exchange policy to please “portfolio investors.”
During an interview broadcast on Channels TV and monitored by Bloomberg, VP Osinbajo said the government is not “unduly worried” by JPMorgan’s decision, and this statement upholds the Central Bank of Nigeria’s currency control measures.
Nigeria was included in the indexes in 2012, but Osinbajo noted this had made “hot money” to find its way into the economy and this trend has now been reversed.
Following a slump in global oil prices earlier this year, the naira’s value plunged to a record low in February and this prompted CBN Governor Godwin Emefiele to extend restrictions on forex trading while imposing bans on the purchases of US dollars by some importers.
The monetary controls put in place by Emefiele stabilized the naira in relation with other major currencies, but it put Emefiele at odds with certain investors and even fellow central bankers who said the naira is overvalued.
“We need short-term foreign exchange controls even at the risk of delisting at JPMorgan,” Osinbajo said. The restrictions “have really been successful. They’ve led to a situation where our foreign-exchange reserves have stabilized and our current-account deficit has narrowed, which is good in the short term, but it can only be short term.”
President Muhammadu Buhari had on September 16 said he does not approve of further devaluation of the naira, and VP Osinbajo’s comments seem to echo the president’s views on the economy.
Last Wednesday, half of Nigerian bonds listed on JPMorgan’s emerging markets bond index (GBI-EM) was delisted from the index – meaning that investment funds tracking the index will sell Nigerian bonds, adds to upward pressure on national borrowing costs from a sharp drop in oil revenues.
To this end, 50% of Nigerian bonds were delisted on September 30 as part of JPMorgan’s month-end index rebalancing, effectively reducing Nigeria’s weight to 0.79%. That of Brazil rose by 0.80% and South Africa’s rose by 0.20%.
Nigeria was the second African country to be listed in JPMorgan’s in 2012, following South Africa. Nigeria’s weight was 1.8% then. As at September 25, the estimated yield for Nigerian bonds was quoted to be 14.83%, making it the second highest yield after that of Brazil which stood at 15.75%.