Temporary Improvement on the Services Account in Q3 2020

Proshare

Monday, March 01, 2021   /08:55 AM / By FBNQuest Research/ Header Image Credit: FBNQuest Research

 

One of the core weaknesses of the Nigerian balance of payments is the permanent net outflow on the services account. There has been a short-term improvement in the past two quarters because of COVID-related restrictions across the world including a halt to international air traffic in Nigeria for much of the period. Nigerians made very limited use of the fx allowances for education, health and business travel related spending.

 

We see from the CBN's Quarterly Statistical Bulletin that the net services deficit declined to USD1.82bn in Q3'20 from USD2.59bn the previous quarter and USD8.48bn in Q3'19. The narrative was similar in 2016 and early 2017, when the CBN practised effective fx rationing. Nigerians were then at least able to travel: it is just that they could not secure the allowances.

 

Travel debits collapsed to USD0.13bn in Q3'20, compared with the year earlier's USD3.44bn. Education accounted for USD0.10bn (vs USD1.51bn  in Q3,19) and the entry for health related spending in the bulletin is negligible (vs USD0.64bn). 

 

The credits on the services account have declined during life with COVID-19 but at a far slower pace than the debits. The selective lockdown and subsequent restrictions would explain the modest decline. The figure of USD0.97bn in Q3'20 consisted largely of freight costs, other personal travel, and financial, government and insurance services. (The data show a consistent yet small surplus on government services.)

 

What Nigeria lacks are services industries that generate fx earnings. Examples from other jurisdictions include transportation (Ethiopia), medical tourism and outsourcing (India), recreational tourism (South Africa, Egypt, Senegal and Kenya), and offshore financial services (Mauritius).

 

The much reduced outflow on services has not brought a current-account surplus, which would have been the first since Q2'18 (Good Morning Nigeria, 18 February 2021). Merchandise imports have been more resilient than expected while net transfers (essentially workers' remittances) have disappointed.

 

Once we have started to live "normally" with the virus in our midst and fx is again freely available, Nigerians will again draw on the authorized fx allowances and the deficit will return to previous levels. The latest improvement is therefore short-term. The net outflow averaged USD9.68bn per quarter in 2019. 


Transactions on the services account (USD bn)

Proshare Nigeria Pvt. Ltd.

Sources: CBN; FBNQuest Capital Research


 Proshare Nigeria Pvt. Ltd.


Related News

1.      Short-term Boost to the Services Account

2.     The Pandemic and The Services Account; Debit Decreased by US$1.5bn to US$8.9bn in Q1 2020

3.     Debit on the Services Account Exceeds $10bn in Q4 2019

4.     A Structural Deficit on the Services Account

5.     The Virus Impact on the Current Account

6.     Continuing Deficit on the Current Account

7.     Current Account: Deficit on the Run as Pressure Mounts

8.     Nigeria's Current Account Deficit Widened from -2.2% to -5.4% in Q4 2019

9.     COVID-19 in Nigeria: Economic Perspectives and Mitigating the Risks

10.  Coronanomics: Nigeria Needs Economic Pragmatism and Robust Institutions - Dr. Temitope Oshikoya

11.   Nigeria's Total Public Debt Stood At N27.40trn in Q4 2019 - NBS

12.  High Debt Service, Low Revenue Collection

13.  FAAC Disburses N647.35bn in February 2020 - NBS

14.  PMI Reading No 84: Fall on Global Headwinds

15.  Debit on the Services Account Exceeds $10bn in Q4 2019

16.  Modest Rise in the FGN's Domestic Debt; Debt Stock At N14.27trn As At December 2019

17.  Nigeria's Current Account Deficit Widened from -2.2% to -5.4% in Q4 2019

18.  Nigeria's Current Account Into Deficit in Q1 2019

19.  Current Account Records Surplus Of US$1.1bn in Q4 2018 Against Deficit of US$1.5bn in Q3 2018



Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP