Nigeria Records $17Bn Current Accounts Deficit on Huge Import Bill
Nigeria’s current accounts deficits worsen in 2020 due to poor foreign exchange earnings from goods trade accounts and huge import bill payments, the nation’s balance of payment statistics shows.
The balance of Payment report published by the Central Bank (CBN) shows that for the second consecutive year, Nigeria recorded a current account deficit of -$17.0 billion – same as in 2019.
This was driven by deficits in three of the four components of the nation’s current account, bringing the current account balance as a percentage of gross domestic product (GDP) to -4.2% from -3.6% in 2019; which implies that the country consumed more than it produced.
Specifically, compare with 2019, the country recorded deficits on Goods Trade Account at – $16.4 billion from $2.2 billion surplus, Services Trade Account -$15.8 billion from -$33.8 billion and Income Account -$5.8 billion from -$12.5 billion in respectively.
The deficit on the Goods Trade Account was mainly driven by the 44.1% year on year decline in earnings from crude oil exports to $26.8 billion from $47.9 billion in 209, while the value of imported refined oil declined by 15.7% to $52.3 billion from $62.1 billion in 2019.
Afrinvest said this development further underscores the huge fortune lost annually by the country to the importation of refined oil products due to the non-functional state of the national refineries.
Despite the decline in earnings, crude oil was Nigeria’s major commodity of exports in 2020, accounting for 74.6% of the total value of goods exported ($35.9 billion) to the rest of the world in 2020.
The deficit on the Services Trade Account (-$15.8 billion) represents the lowest since 2017. Analysts at Afrinvest said this was mainly driven by 59.0% and 57.4% decline in personal and business travel expenses to $4.9 billion and $6.8 billion compared to $11.9 billion and $16.0 billion in 2019.
“We attribute this to the restriction on cross-country travels in most of 2020 due to COVID-19 pandemic, and we believe this trend will likely reverse in 2021 as more economies across the world re-opens their airways for travels.
“However, we are of the view that high insecurity, weak macroeconomic fundamentals, and poor state of infrastructure will continue to deny Nigeria the potential gains that come with a viable tourism & hospitality sector in the near term”, Afrinvest said in a review.
Likewise, the deficit on the income account printed at -$5.8 billion represents the lowest in more than five years. This was largely driven by a 56.5% year on year reduction in direct investment income debit to -$5.2 billion, from -$12.2 billion in 2019.
“We suspect this may not be unconnected to the failed attempt of some foreign investors to repatriate their investment in 2020, as the CBN adopted a strict FX management policy to reduce pressure on the external reserves”, the investment firm added.
However, it was noted that Nigeria recorded a drop in the current transfer balance to $21.0 billion from $26.4 billion in 2019. This was mainly driven by Workers’ Remittance credit which settled at $17.0 billion, down from $23.5 billion in 2019.
“To our mind, the contraction in remittances drove the CBN’s introduction of the “Naira for Dollar” scheme in March 2020 as dollar inflow through official channels dried-up”, analysts said.
Consequent on the pressure on the current account, net-capital and financial account, a measure of the difference between a country’s liability to the rest of the world and assets from the rest of the world settled at $5.1 billion in 2020 compared to $18.1 billion in 2019.
Although this represents a reduction compared to 2019, yet, the positive Net-Capital and Financial Account indicate that the country’s liability to the rest of the world outweighed its assets from the rest of the world as of the end of 2020.
“While we expect the CA balance to improve to -$7.1 billion in 2021 from -$17.0 billion in 2020, we project that the country’s balance of payment will remain in deficit in the near term, due to over-dependence on crude oil export and the huge import bill”, Afrinvest said.
Nigeria Records $17Bn Current Accounts Deficit on Huge Import Bill
