Oil Headwinds Pose Risks to Nigeria’s Current Account Balance
Nigeria’s current account could turn to deficit if oil price slump below $60 per barre, AGG Capital Limited said in its macro update. Some analysts said the new 14% tariff on Nigeria’s export has become a threat to 2025 budget due to direct impacts on foreign revenue target for the year.
In a new update, AGG Capital Limited explained that the current account measures a country’s trade and income flows – that is, the inflow and outflow of goods, services as well as investment incomes with the rest of world. For Nigeria, the last three years has been positive in terms of the level of export and import revenue, resulting in favourable trade balance in naira term.
AGG Capital Limited highlighted the improvement in Nigeria current account balance over the last three years, compared to the subdued performance between 2019 and 2021. Analysts attributed the improvement to a recovery in global oil prices, which rebounded from US$59.4/b to US$87.01/b, despite Nigeria’s failure to meet up with OPEC’s quota.
“These trends underscore the importance of diversifying Nigeria’s economy and enhancing non-oil exports to achieve a more stable external balance.”, AGG Capital Limited said in its macro update.
The surplus in the current account rose by 14.2% year on year to US$3.82 billion in 2024. However, on a quarter-on-quarter basis, the surplus declined, representing 7.59% of GDP, down from US$6.06 billion or 13.04% of GDP in Q3 2024.
The firm said this contraction was primarily driven by a narrower surplus in the goods account, reflecting a combination of weaker export earnings and rising import bill. AGG Capital Limited noted that the recent global development, especially with U.S President Trump’s pro-oil stance and tariff policies pose a potential downside risk to Nigeria’s current account position.
“These headwinds raise concerns over the ability of the current account balance to serve as a reliable support for the country’s external reserves in 2025”. As of yesterday, Brent crude closed at US$64.21/b, marking its lowest level in nearly four years.
“Should crude prices fall below the US$60/b threshold, Nigeria could likely slip into a current account deficit, given that crude oil accounts for over 83.5% of the country’s export earnings”, AGG Capital Limited said. Court Hears EFCC’s Motion for Final Forfeiture of N228.4m
