Following the success of the Investors and Exporters (I&E) window in the past year, during which about $45 billion was realised, possibilities abound that Nigeria may soon be readmitted into the J.P Morgan Government Bond Index-Emerging Market (GBI-EM).
Recall that Nigeria was kicked out of J.P Morgan’s Government Bond Index-Emerging Market in 2015 following Central Bank of Nigeria’s currency restrictions. The American bank had complained at the time that this CBN policy made for lack of liquidity and transparency in Nigeria’s FOREX market, and as such made bond market transactions too complex.
Nigeria’s removal from the GBI-EM caused many foreign investors to sell off their holdings.
The bank however stated that Nigeria could qualify for readmission by restoring liquidity to the foreign exchange market.
Nigeria’s response to being removed
On April 24, 2017, the Central Bank of Nigeria created the Investors and Exporters FX Window with the intention of boosting liquidity and ensuring quick execution and settlement of FX transactions. In the same vein, the Nigerian Autonomous Foreign Exchange Rate (NAFEX) was introduced to serve as a reference rate for the I&E window. This week makes it one year since the window has successfully operated.
The J.P Morgan Government Bond Index-Emerging Market tracks local currency bonds that are issued by emerging market governments. Nigeria became the second African country (after South Africa) to be listed on the GBI-EM in October 2012. This was following the removal of a policy restricting foreign investors from holding Nigerian Government’s bond for more than one year.
Benefits of a likely re-admittance
Nigeria’s readmittance into the index will enhance liquidity in the bond market. This is in turn will encourage foreign investors to to subscribe to bond issues. In addition, it will boost the country’s foreign reserves. Recent data by the Central Bank of Nigeria (CBN) shows the reserves have hit a high of $47 billion.
