Nigeria’s Internecine Index Debate

Nigerian shares were off 40 percent at Africa’s MSCI frontier bottom as the central bank rates and intervention were unchanged before the mid-February presidential contest, with the naira at a record low 190 to the dollar and JP Morgan threatening local debt index exclusion with bank position constraints on liquidity. One-fifth of $35 billion in international reserves was lost last year and the revised 2015 budget based on $65/barrel oil projects 20 percent for debt service. The weighting in the GBI-EM is less than 2 percent but disqualification would prompt an estimated $4 billion in outflows and test domestic institutional investor capacity to absorb the slack. Officials argue that prudential measures are temporary and are not capital controls which could justify suspension. Macroeconomic and security policies are in a holding pattern until the election result which still favors another President Jonathan term despite lead narrowing. With negative oil GDP growth this year the overall result will be 5 percent on resumed double-digit inflation. With spending and subsidy cuts the fiscal deficit will be under 1 percent of GDP and $2 billion from the excess crude account may limit future borrowing. Defense outlays to fight Boko Haram are set to increase and a joint anti-insurgent effort with Chad and Cameroon is planned for the coming months amid reports of atrocities and lost towns on shared borders. In Zambia late January polls are close on choosing a successor to complete the remainder of the deceased incumbent’s mandate through 2016. The main two parties are again at odds but a third grouping candidate, a wealthy business executive, has emerged to upset the mix. With plunging copper prices the economy is a major issue with contradictory views on Chinese investment but an IMF program skirted in campaign rhetoric. The winner is unlikely to stress fiscal consolidation in the hope that higher mining royalties will generate revenue to keep the deficit under 5 percent of GDP. Inflation at 7-8 percent on currency depreciation will exceed growth, and despite reserves at just three months imports another Eurobond is not in the cards after last year’s tumultuous attempt.

Ghana’s IMF return is also on hold as the two sides iron out policy and technical differences with no agreement in sight until mid-year. Without Eurobond access domestic borrowing needs have doubled with the cedi still reeling from the 8 percent of GDP current account hole exacerbated by gold and oil price decline. Benchmark interest rates approaching 20 percent have decimated stocks off 30 percent on an annual basis. Kenya has been an exception with a 10 percent equity gain and possible plans to issue another global bond after 2014’s debut. Lower oil prices will aid the balance of payments and the president and vice-president no longer face proceedings at The Hague International Tribunal after the human rights case was dismissed for lack of evidence. Al-Shabab attacks have affected tourism but 5 percent growth and an IMF precautionary facility may offer a counteroffensive.

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