The current account deficit is narrowing, but the trade balance remains a concern

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Friday, July 9, 2021 / 5:33 p.m. / By CSL Research / Header image credit: CSL Research

Nigeria’s international investment position improved in the first quarter of the year, with the CBN’s balance of payments (BoP) report showing that the current account deficit moderated to $ 1.75 billion ( 1.7% of GDP) against 5.26 dollars (5.0% of GDP) in Q4 2020. Analysis of the breakdown showed that the trade deficit was 4.0% of GDP against 5.4% in previous quarter. The deficit is explained by the weakening of export earnings, which fell by 8.7% q / q. This is of concern as the value of exports was below the pandemic level when world trade nearly came to a halt. As the price of crude oil hits a 2-year high of US $ 74.43 billion, the OPEC + deal continues to cap oil revenues, with oil production (excluding condensate) standing at 1.4 Mb / d in the first trimester.

On the other hand, foreign outflows decreased as imports fell by 18.7% q / q. For us, that portrays two things; (1) domestic consumption (around 60% of GDP) has not yet returned to pre-pandemic levels and (2) intensification of exchange controls by the CBN. In addition, remittances (+ 5.6% q / q) are gradually picking up, reflecting the improved well-being of Nigerians in the diaspora and the likely impact of CBN’s Naira 4 Dollars program. On the funding side, despite macroeconomic headwinds and regulatory uncertainty, the inflow of foreign portfolios improved to US $ 2.4 billion, from a negative position of US $ 0.4 billion at fourth quarter 2020. Perhaps this indicates that foreign investors are taking advantage of the carry opportunity in the market.

Looking ahead, we expect oil exports to improve, supported by rising crude oil prices and improving crude oil production, as OPEC production cuts are reduced. about to shrink. In addition, we await the reopening of borders and the implementation of the African Continental Free Trade Agreement (AfCFTA) to support non-oil exports. In addition, the start of operations at the Dangote refinery scheduled for this year will reduce both crude exports and fuel imports, with a modest net impact on the balance of payments, largely emanating from cost savings. freight. On the basis of these elements, we estimate a decrease in the current account deficit to 1.2% of GDP for 2021. To correct this external imbalance, we envisage a probable devaluation of the NGN from 6% to 9% by the end. of the year.


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Proshare Nigeria Pvt.  Ltd.

Proshare Nigeria Pvt.  Ltd.


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