Nigeria is expected to attract additional foreign investment into its domestic debt market after global investment bank JPMorgan announced the inclusion of Federal Government of Nigeria bonds in its newly introduced Government Bond Index–Emerging Markets Edge (GBI-EM Edge).
The move is expected to increase demand for Nigerian government securities, improve liquidity in the local bond market and potentially reduce borrowing costs as investment funds that track the index adjust their portfolios to reflect Nigeria’s new 7.40 per cent weighting.
The GBI-EM Edge is managed by JPMorgan and tracks local-currency government bonds across emerging and frontier markets. Nigeria’s inclusion marks its return to a JPMorgan bond benchmark after more than a decade.
Nigeria was removed from the GBI-EM Global Diversified Index in 2015 following challenges relating to foreign exchange liquidity. The Federal Government said recent reforms, including efforts to stabilise the naira and clear outstanding foreign exchange obligations, had helped address some of the issues that previously affected the country’s eligibility.
In announcing the development, the Federal Ministry of Finance said Nigeria had satisfied key requirements for inclusion, particularly those relating to market liquidity and the size of outstanding government bond issues.
The ministry noted that FGN bonds are actively traded through a Two-Way Quote System, while the outstanding value of eligible bonds across the relevant maturities exceeds the $250 million threshold required for inclusion in the GBI-EM Edge.
Nigeria will have a 7.40 per cent weighting in the index, placing it among the highest-weighted markets out of the 26 countries covered. The allocation is also close to JPMorgan’s maximum country weighting of eight per cent.
The index tracks approximately $328 billion in local-currency government debt globally, while Nigeria’s allocation represents roughly $17.47 billion of eligible FGN debt across 16 instruments.
The return to the benchmark is expected to encourage additional foreign portfolio investment as funds that track the index reposition their holdings to match Nigeria’s weighting.
Higher demand for FGN bonds could also support bond prices and gradually push yields lower, potentially reducing the government’s cost of servicing its naira-denominated debt.
Improved liquidity in the government securities market could have wider effects on Nigeria’s fixed-income market, including Nigerian Treasury Bills and other domestic debt instruments.
Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, described the development as an independent indication of increasing international confidence in Nigeria’s economic reforms under President Bola Tinubu.
Oyedele said the inclusion could help reduce the cost of financing the government’s development programmes while reinforcing confidence in the country’s economic management.
He added that the Federal Government would continue implementing reforms aimed at securing Nigeria’s full reinstatement in JPMorgan’s flagship emerging-market bond index.
Nigeria’s return is particularly significant given its previous experience with the JPMorgan benchmark. FGN bonds were initially added to the GBI-EM in 2012, a development that attracted substantial foreign capital into the country’s domestic securities market.
That earlier inclusion was credited with helping reduce Nigeria’s debt issuance costs by about 200 basis points, while also encouraging greater foreign participation in the equities and banking sectors and supporting the country’s external reserves.
The latest development comes as the Federal Government continues efforts to strengthen macroeconomic stability, improve investor confidence and make Nigeria’s financial markets more attractive to international investors.
With its renewed presence on the JPMorgan index, Nigeria could see increased foreign participation in its local debt market as global investors reassess their exposure to the country’s government securities.
