‘Nigeria’s Return To JPMorgan Bond Index Will Cut Borrowing Costs, Boost Dollar Inflows’

Nigeria’s return to a major JPMorgan emerging markets bond benchmark after an 11-year absence is expected to translate into cheaper government borrowing and fresh dollar inflows into the domestic debt market, analysts say, as selected federal government of Nigeria bonds enter the newly launched Government Bond Index Emerging Markets Edge.

With a 7.40 per cent weighting in the GBI-EM Edge, Nigeria ranks among the highest-weighted of the 26 frontier markets tracked by the index, which covers about $328 billion in local-currency government debt. That weighting typically determines how much passive index-tracking capital flows into a country’s bonds, as fund managers benchmarked against the index adjust their portfolios to match it.

The last time Nigeria was included in a JPMorgan benchmark, the effect on financing costs was measurable. When FGN bonds first entered the GBI-EM in 2012, the Federal Ministry of Finance said the inclusion cut Nigeria’s cost of issuance by roughly 200 basis points, while drawing foreign capital into equities and banking and shoring up external reserves.

Nigeria was dropped from the GBI-EM Global Diversified Index in 2015 after foreign exchange liquidity constraints made it difficult for investors to move money in and out of the market, a structural problem that kept the country locked out of passive index flows for over a decade.

The Finance Ministry said Nigeria met the index’s two core requirements, liquidity and issuance size, with FGN bonds now actively traded under a Two-Way Quote System and outstanding volumes across eligible tenors well above the $250m minimum threshold that JPMorgan requires.

The minister of finance and coordinating minister of the economy, Taiwo Oyedele, tied the development to the naira’s stabilisation, clearance of the FX backlog, and improving growth and inflation numbers, which he said had restored the conditions index providers require.

Oyedele said, “This inclusion is a clear, independent endorsement of the discipline behind President Bola Ahmed Tinubu’s reform agenda. It reflects the confidence that international capital markets now place in Nigeria’s economic management and lowers the cost of financing our development priorities. We remain focused on the work still required to earn full reinstatement in J.P. Morgan’s flagship index.”

The GBI-EM Edge is a step below JPMorgan’s flagship GBI-EM Global Diversified Index, from which Nigeria remains excluded. Full reinstatement into that larger benchmark would carry a bigger investor base and correspondingly larger inflows, which the ministry says remains the government’s next target.