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Home Opinions Blurb

What could happen if JP Morgan ejects Nigeria from its Index

Nairametrics by Nairametrics
June 7, 2015
in Blurb, Currencies
What could happen if JP Morgan ejects Nigeria from its Index

Commuters are reflected in stone as they walk past the JPMorgan headquarters in New York, in this May 17, 2012 file photo. JPMorgan Chase & Co reported a 31 percent rise in quarterly profit July 12, 2013, as trading revenue rebounded and the biggest U.S. bank by assets set aside less money to cover bad loans. REUTERS/Eduardo Munoz/Files (UNITED STATES - Tags: BUSINESS)

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American Bank JP Morgan has confirmed it will be ejecting Nigeria from its Government Bond Index (GBI-EM) by the year-end unless the CBN reverses some of the foreign exchange policies it introduced earlier in the year directed at stopping the naira from hemorrhaging value. 

JP Morgan in January placed Nigeria on negative watch after the CBN introduced several new policies in the foreign exchange market that some view as capital controls. Apparently, JP Morgan had decided to extend the deadline to eject Nigeria from the index  by another six months to accommodate the new government of President Muhammadu Buhari.

The fact that JP Morgan is waiting on President Buhari suggest they believe him and his officials can pile pressure on a supposedly independent CBN to reverse some of its unpopular policies.

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What could happen if Nigeria is yanked off?

  • JP Morgan runs the most popular and used emerging market debt indexes which only included Nigeria in 2012.
  • If Nigeria is removed, it could lead a lot of foreign investors to sell off their Nigerian bond holdings resulting in frenzy of capital outflows.
  • If this happens, bond yields will spike and borrowing cost will be high thus negatively impacting an already dire economy.
  • The new government is also likely to borrow this year to fund its anticipated high budget deficits and as such higher interest rates only just makes things difficult for the new government
  • The naira may then face another round of major devaluation as the economy will struggle to sustain the pace of forex outflows outside Nigeria
  • If devaluation occurs again, Nigerian will face more hardship and cost of basic household needs such as food, fuel, transportation, travel, electricity etc. will spike
  • This will then portent a very risky situation for the new government as an unhappy and restive populace will not do any of its economic and political agenda good
  • Nigerians are already complaining that the government has been too slow on reeling out how it plans to respond to the current economic malaise facing the country.
  • This could also look bad for the current CBN Governor whose economic policies hasn’t really gone down well with some Nigerians including some in the current APC Government

The new government will be watching what is going on and feelers already suggest some of the members of the presidents economic team may not be happy with the way the current CBN governor is handling the economy.

 

 

Tags: Black MarketCapital controlsCBN Forex PolicyNaira Devaluation
Nairametrics

Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Comments 1

  1. Gloryeze says:
    June 9, 2015 at 5:12 pm

    Thanks for dissecting all this economies terminology into a lay man term, given us (novice)the opportunity, not only to participate in our economy sector but to also contribute.

    Reply

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