Last week, JP Morgan, the United States lender, announced plans to eject Nigeria from its Government Bond Index for Emerging Markets by the end of the year. The reason it gave was that Nigeria needed to restore liquidity to currency markets in a way that allows foreign investors tracking the benchmark to transact with minimal hurdles. It claimed to have given Nigeria till this month to increase liquidity in its currency markets or face ejection from the bond index. This time, however, it claims it is extending the deadline by another six months ostensibly to enable the new administration of President Muhammadu Buhari to have a firm handle on things.
For an economy that was until recently the toast of international rating agencies, this latest development would merely add to the string of woes which attenuated the dip in global oil prices. The auguries, would ordinarily seem far from good: aside forcing the investors tracking it to sell Nigerian bonds from their portfolios potentially resulting in significant capital outflows, the development, it is feared, would raise borrowing costs for the country already suffering from a sharp drop in revenue.
By the way, JPMorgan only added Nigeria to the widely followed index in 2012, the second African country after South Africa to be included. It added Nigeria’s 2014, 2019, 2022 and 2024 bonds.
Should the development stoke panic in the local economy? We clearly do not think so. At best, it is merely a wake-up call. Yes, Nigeria, an emerging economy at this time and a fringe player in the global financial markets –stands to gain from retaining the bank’s listing as against being out.
With due respect to JP Morgan however, the need to restore liquidity to the currency market, being canvassed as basis for ejecting the country from the bond typically betrays an obsession by international agencies with symptoms rather than the underlying disease. But even more asinine is what appears to be a move to stampede the new Buhari administration and the financial authorities into precipitate actions.
Why extend the deadline by six months if we may ask? Why not 12 or even 24 months if the idea is to give the administration a breather? More than JP Morgan would perhaps care to appreciate, Nigerians understand the source of the current crisis. They recognise that the issue at hand requires more than the tinkering with the currency markets, which is akin to seeking treatment for ringworm while leaving a more malignant leprosy unattended to.
Again, we dare to ask: what was the main catalyst in 2012 when the bank added Nigeria to the index, which is missing now? Except for the single factor of oil prices which held high and steady then, we cannot find any difference. So, what happens in the unlikely event of oil prices rebound? Would the bank then change its mind? Such scenarios ought to compel a more fundamental, if not entirely rigorous rethink of its approach to the whole issue.
The truth, however, is that Nigerians did not elect their leaders only to have them pander to international agencies, no matter how well meaning. They elected them to get the job done. Today, the main challenge is how to diversify the economy in quick time; how to ensure a quick turn-around in the infrastructure situation, and to create jobs for the army of the unemployed. The government should bear in mind that it is their performance on those indices that ultimately counts; not what these international agencies think.