Nigeria’s Current-account surplus close to zero


Tuesday, December 23, 2014 1:41 PM / FBN Capital Research

One pillar of Nigeria’s strong external balance sheet (foreign debt ratios) remains solid while two others are rapidly weakening.


The steady decline in official reserves is the source of daily comment but the shrinking of the current-account surplus today warrants our attention.


The one quarterly deficit in our chart (in Q3 2011) coincided with a spike in oil industry imports ahead of the last attempt at fuel price deregulation in January 2012.


We have reworked our balance-of-payments projections for 2015 and come up with a negligible surplus of US$3.5bn, equivalent to 0.6% of GDP. We estimate the average for 2012 to 2014 at 3.6%.

Our oil assumptions for the average price and production of US$66/b and 2.25 mbpd are close to those underpinning the FGN’s 2015 budget proposals. We see the average price at its lowest in Q2, and thereafter picking up gently as some of the producers with high break-even levels halt operations.

We had initially thought that these assumptions would drive the current account into deficit. However, our detailed workings resulted in: some compression in merchandise imports as a result of lower petroleum product prices and of some substitution in the face of exchange-rate depreciation; and a fall in services outflows to match that in imports of goods. We left income outflows and inflows for transfers unchanged from this year in US dollar terms.

The surplus has narrowed over several years due to a combination of stable/declining oil production and the impact of the demographics on imports.

This further deterioration should act as a wake-up call to deepen the reform programme (passage of the PIB, fuel subsidy removal and import substitution).




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