Deficit on the Current Account Contained


Monday, November 28, 2016/11:08 AM /FBNQuest Research

Nigeria’s balance on the current account is highly correlated with its oil exports. Our chart shows that the trade and current accounts move in tandem other than a blip in Q1 2016.

The balance on trade has fallen from a surplus equivalent to 6.8% of GDP in Q2 2012 to a deficit of -1.6% in Q2 this year. Over the same period, the share of oil and gas exports in GDP has plummeted from 20.5% to 7.4%.

The data reinforce the impression that the fall in exports has been more dramatic than that for imports, and underpin the argument for economic diversification.

In Q1 the trade account deteriorated to -1.5% of GDP while the current account balance improved to a small surplus of 1.3%. This departure from the trend was due to the services account, on which the deficit narrowed from -2.6% of GDP to -0.4%.

Two developments explain the anomaly: a credit for communications services of US$2.13bn (compared with just US$22m the previous quarter) and a debit on travel of just US$280bn (compared with US$1.06bn). They can also be seen in the Q2 data, although on a smaller scale.

The inflows on net current transfers, which are not shown in our chart, have ranged between 3.8% and 4.9% of GDP over the four-year period. A decline from 4.8% to 4.3% in Q2 is consistent with anecdotal evidence that remitters are increasingly turning to the parallel market for the greater naira value.

It is clear that, until Nigeria is able finally to diversify its economy, weak oil export revenues generally directly into a current-account deficit, albeit one of manageable proportions.

We see deficits ahead representing -3.8% of GDP this year and -2.0% next. This is not Ghana nor does it invite comparison with, say, Angola.

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