Nigerian authorities have maintained that they would only continue to take those economic decisions that would impact positively in the lives of the citizens, in response to J.P Morgan ‘ s decision to phase out the nation from its Government Bond Index for Emerging Markets (GBI-EM) by the end of September.
JP Morgan, a United States-based lender, said on Tuesday that its latest decision is based on alleged lack of liquidity and transparency in the Nigeria’s foreign exchange market.
JP Morgan had on January 16 placed Nigeria on a negative index watch on the Government Bond Index and would assess its place on the GBI over the few months.
The American bank had warned that currency controls by the Nigetia’s Central Bank were making Nigeria’s bond market transactions too complex to meet its rules.
But in a rare joint press statement late last night by the Federal Ministry of Finance (FMF), Central Bank of Nigeria (CBN), and the Debt Management Office (DMO), the authorities strongly disagreed with the premise and conclusions upon which the J.P Morgan’s decision was made.
According to them, the recently introduced order – based, two-way FX market, has resulted in the stability in the exchange rate in the interbank marker over the past 7 months and largely eliminated speculators from the market.
JPMorgan’s action could put the nation’s $31bn external reserves under threat as it may lead to further massive sell-offs of Nigerian assets by foreign portfolio investors, experts say.
But the Nigerian authorities insist that while they respect J.P. Morgan’s right to make this decision, they “would like to strongly disagree with the premise and conclusions upon which the decision rests.”
In a statement specifically signed by Ibrahim Muazu, CBN Director of Corporate communications, they 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.
They said in their continuous bid to strengthen the Nigerian financial market and enhance the nation’s status as a preferred destination for investors, several measures were taken 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,” they noted in the statement.
“On transparency, the CBN mandated that all FX transactions were posted online in the Reuters Trading Platform so that all stakeholders can easily verify these transactions in the market. In addition, the official FX window at the CBN wad closed to ensure a level – playing g field in the pricing of foreign exchange.”
They said it was important to note that a functional two-way FX Market already exists in Nigeria.
“However, 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,” they explained.
And in the light of this, an order – based, two-way FX market, which has resulted in the stability in the exchange rate in the interbank marker over the past 7 months and largely eliminated speculators from the market was introduced.
“Despite these positive outcomes, the J. P. Morgan would prefer that we remove this this rule; eventhough it is obvious that doing so would lead to indeterminate depreciation of the Naira,” they worried.
But the authorities insist on their convintion that in midst of the dwindling of 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,” they maintained.
Author: Onyinye Nwachukwu
