Nigeria’s Balance of Payment Plunged to Deficit in Q1

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Monetary Policy Committee cuts benchmark interest rate to 12.5%

Nigeria’s Balance of Payment Plunged to Deficit in Q1

The value of economic transactions between Nigerians and the rest of the world in the first quarter has resulted to $11.18 billion deficit in the first quarter of 2020 according to data released by the apex bank.

Apparently, Nigerians imported more goods, services and capital than exported in the first three months of 2020 despite the rampaging covid-19.

In the fourth quarter of 2019, the nation had reported a surplus of more than $6 billion due to increased export activities.

Meanwhile, this trade miss comes at the time when the country records current accounts deficits for fifth consecutive quarters.

The Central Bank of Nigeria, CBN, released its provisional first quarter (Q1-2020) trade data data, indicating a large BoP deficit of US$11.18 billion.

Interpreting the data, Chapel Hill Denham said this amount translated to 11.2% of gross domestic product (GDP) in the period.

Nigeria’s Balance of Payment Plunged to Deficits in Q1
President Muhammadu Buhari

Albeit from a surplus of US$6.28 billion in the fourth quarter of 2019 which was 4.8% of GDP and US$2.10 billion which then accounted for 2% of GDP in Q1-2019.

Notably, the country recorded its fifth consecutive current account deficit of US$4.88 billion.

Albeit, this is lower than the US$6.95 billion deficit in the fourth quarter of 2019 but higher than the deficit of US$2.72 billion in Q1-2020.

The Q1-2020 current accounts deficit was induced by a negative balance of US$439.91 million, US$7.78 billion, US$2.81 million in the goods, services and income accounts respectively.

These partly offset by a surplus of US$6.15 billion in the current transfers account.

Chapel Hill Denham said against this backdrop, the firm reiterates baseline expectation of a current account deficit of US$20 billion in 2020.

This translates to 4.7% of GDP, which in analysts views, stresses the case for a likely devaluation, when the CBN commences full intervention sales.

In a related development, the USD index sustained the upward trajectory (+0.31% wow to 97.62pts), buoyed by signs of rising COVID-19 cases in major economies.

Chapel Hill Denham said it noted that Beijing commenced another round of partial lockdown following renewed coronavirus cases.

However, data from the U.S. suggested that the economy may have hit rock bottom and is on course for a recovery.

Notably, U.S retail sales surged by a record 17.7% mom in May, beating economists’ expectation of a modest 8.4% mom and the revised 14.7% mom reading for April.

“We highlight that U.S Fed Chairman advised Congress, in his semi-annual testimony, against withdrawing fiscal stimulus for the economy as the recovery remained fragile”, the firm stated.

Analysts said this was on the back of a US$250 billion stimulus plan by the Fed for the purchase of corporate bonds.

So, the GBP/USD remained under pressure, falling by 2.02% wow to a 3-week low of 1.23, following sobering economic data releases.

Analysts at Chapel Hill Denham noted that the UK’s public debt exceeded 100% of GDP for the first time since 1963.

Also, inflation fell to a four-year low of 0.5% year on year in May (0.8% in April), below the Bank of England, BoE’s, 2% target.

However, unemployment data surprised to the upside, holding steady at 3.9% in the three months to April.

“We note that the BoE maintained policy rates at 0.1% but dialed up its quantitative easing (QE) programme by £100 billion as expected.

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“This week, we expect markets to react to the EU’s failure to reach an agreement on the planned €750 billion stimulus.

“The Fed’s preferred inflation metric, the core PCE, is also due this week alongside the final reading of the U.S Q1-2020 GDP”, analysts said.

Nigeria’s Balance of Payment Plunged to Deficit in Q1.

Balance of payment deficit story written by Julius Alagbe

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