FINANCIAL services giant JP Morgan has threatened to remove Nigeria from its government bond index (GBI-EM) by the end of this year unless the Central Bank of Nigeria (CBN) restores liquidity to the nation's foreign exchange market. 

With the recent fall in oil prices and the subsequent effect it has had on Nigeria's revenue, the CBN has had to make adjustments to the foreign exchange market to combat capital flight. JP Morgan said this, however, is preventing foreign investors from tracking the benchmark to transact with minimal hurdles. 

According to JP Morgan, it has extended its deadline to eject Nigeria by another six months to take into account the election of President Muhammadu Buhari.  JPMorgan, which runs the most commonly used emerging debt indexes, placed Nigeria on a negative index watch in January and then said it would assess its place on the index over a three to five months period. 

“Nigeria’s status in the GBI-EM series will be finalised in the coming months but no later than year-end. If we are unable to verify these factors, a review of Nigeria’s status within the benchmark for removal will be triggered,” a JPMorgan spokesman said. 

Removal from the index would force funds tracking it to sell Nigerian bonds from their portfolios, potentially resulting in significant capital outflows. This in turn would raise borrowing costs for the economy, which is already suffering from a sharp drop in revenue due to falling oil prices. 

Nigeria’s forex and bond markets have come under pressure after the price of oil, Nigeria’s main export, plunged. In response, the CBN fixed the exchange rate in February after devaluing the naira last year and tightened trading rules to curb speculation. 

This year, the naira, Nigeria's currency has lost 8.5% of its value. JPMorgan added Nigeria to the widely followed index in 2012, when liquidity was improving, making it only the second African country after South Africa to be included, adding Nigeria’s 2014, 2019, 2022 and 2024 bonds. 

According to the bank, Nigeria continues to remain eligible for the GBI-EM index, which has around $210bn in assets under management benchmarked to it, with a weight of 1.8%. Last week, the CBN made a tiny adjustment to its exchange rate peg to the dollar, which one analyst said may indicate that it is beginning to think of making the necessary changes.