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The Nigerian Naira’s value fell by 7.08% against the US Dollar in the Investors’ and Exporters’ FX Window, closing at a rate of N773.50, as reported by data from FMDQ. This decline follows FTSE Russell’s decision to reclassify Nigeria’s index from a frontier to an unclassified market status.
FTSE Russell issued a statement explaining the downgrade, citing the failure of naira reforms to improve the US dollar inflow or repatriation abroad. A significant unsettled FX backlog remains due to the central bank’s move to manage the float rate regime.
Last week, the acting governor of the Central Bank of Nigeria (CBN) announced plans to clear the estimated $2.5 billion foreign currency backlog within two weeks. This led to a consecutive drop in the gross external reserves as the market perceived that the process had begun. Consequently, the local currency strengthened to close at N722, although the parallel market rate worsened due to spurious demand from invisible users.
FTSE Russell stated that despite Nigeria adopting a floating foreign exchange rate for the Naira in the Investors’ & Exporters’ (I&E) FX Window, liquidity issues continue to affect international institutional investors’ ability to replicate benchmark changes.
The report highlighted that index changes for Nigeria within FTSE Russell equity indices had been suspended since September 2022 due to the lack of improvement in international institutional investors’ ability to repatriate capital at an exchange rate suitable for FTSE Russell equity indices.
As a result of the Governance Board’s ratification, FTSE Russell announced the downgrade of Nigeria’s FTSE Equity Country Classification status from Frontier to Unclassified market status. Nigerian index constituents will be deleted at zero value (0.0001 NGN) from specified FTSE Russell equity indices, effective from the open on Monday, September 18, 2023.
FTSE Russell explained that Nigeria would be continuously monitored, and once foreign currency delays are cleared for an extended period, Nigeria will undergo an assessment as a new market following FTSE Equity Country Classification procedures.
During this process, Nigeria will spend time on the Watch List before being readmitted as an eligible market for FTSE Russell equity indices.
The local currency’s depreciation by 7.08% from its rate on September 8 has raised concerns in the FX market, with the highest rate reaching N804.15 to the US dollar during the day’s trading before settling at N773.50. Data from the FX market indicated that the naira was traded as low as N722.39 per US dollar during the day, with a total of $37.86 million traded at the investors and exporters window on Monday.
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