BREAKING NEWS, Business
–
The federal government has dismissed the reasons J. P. Morgan gave for delisting its bonds from the Government Bond Index for Emerging Markets on Tuesday, September 8
THE federal government is of the view that J. P. Morgan based its decision to phase out Nigeria from its Government Bond Index for Emerging Markets on a very wrong premise. J. P. Morgan which announced the delisting of the federal government bonds cited lack of liquidity for transactions, lack of transparency in the determination of the exchange rate and lack of a fully functional two-way FX Market as the basis for its action.
However, the federal ministry of finance, FMF, Central Bank of Nigeria, CBN, and the Debt Management Office, DMO, have strongly disagreed with the decision by J. P. Morgan on Tuesday, September 9, to phase out Nigeria from its Government Bond Index for Emerging Markets, GBI-EM. “While we respect the right of the J. P. Morgan to make this decision, we would like to strongly disagree with the premise and conclusions upon which the decision rests,” according to the statement signed by Ibrahim Mu’azu, director, Corporate Communications, CBN, for and on behalf of the FMF, CBN, and DMO issued on Tuesday and made available to Realnews.
The statement 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.
J. P. Morgan’s action against Nigeria came on the heels of CBN’s measure to improve the market and its continuous bid to strengthen the Nigerian financial market and enhance its status as a preferred destination for investors.
CBN’s effective proactive measure ensured that 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 apex bank ensured that all genuine and effective demand were met, especially those from foreign investors.
The CBN also ensured transparency by mandating all FX transactions to be posted online in the Reuters Trading platform so that all stakeholders could easily verify all transactions in the market. In addition, the official FX window at the CBN was closed to ensure a level-playing field in the pricing of foreign exchange.
This is why CBN said: “It is 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.”
In the light of this, CBN 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 seven months and largely eliminated speculators from the market.
“Despite these positive outcomes, the J. P. Morgan would prefer that we remove this rule; even though it is obvious that doing so would lead to an indeterminate depreciation of the Naira. With dwindling oil prices, we believe that 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,” it said.
CBN’s position notwithstanding, Realnews gathered not the economy will not lose much as a result of J. P. Morgan’s delisting gambit. Although the decision of the J.P. Morgan will minimally effect Nigeria’s fragile economy, the maximum impact will be on gamblers who had been trading with the country’s bonds especially during the oil boom days. Now all they will have to do with the bonds is to hold it until maturity to get the interest on their investment. What the action of the JP Morgan implies is that those who have been reaping huge reward based on speculative trading will have to rethink their investment, especially now that the revenue from oil has been declining.
This is why Nigerians should not necessarily be worried by the J.P. Morgan’s latest gambit against the interest of the country by insisting that it should not protect the depletion of its foreign reserve which has been adversely affected by dwindling revenue from crude oil sales.
Some economic experts who spoke to Realnews pleaded time to study the situation, some said the impact will be minimal while others said that big time gamblers will be affected.
A retired official of one of the multinational financial institutions, who wishes anonymity, told Realnews on Wednesday that bond price will go down and becomes cheap as gamblers will not speculate and trade with it. “It will harm the economy because the bonds will no longer be attractive to investors. People who ought to buy will not buy. There are people who don’t buy bonds to hold like we do in Africa and Nigeria. Some people buy with the hope of selling. Some people just like it. If the bond is not listed it will not trade. You may not find people to buy bonds because they are not tradeable,” he said.
But an official of the apex bank explained that delisting federal government bonds from J. P. Morgan would not have any impact all because Nigeria all along was not listed on its platform until 2012 during the oil boom and the country did not miss out.” The official also explained that every country has a right to protect its economy to ensure a sustainable growth and should not throw it open to dumping which could run it aground.
— Sep 9, 2015 @ 16:40 GMT
|
Tags:
