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Currencies

CBN blames petroleum import for Nigeria’s $5.2 billion current account deficit

Importation of petroleum products is a major reason why have a current account deficit of $5.2 billion

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The latest data from the Central Bank of Nigeria indicates the country’s current account deficit to a whopping $5.2 billion in the 4th quarter of 2020.

A current account deficit occurs when a country’s foreign liabilities exceed its foreign assets. It is exacerbated when the country imports more than it exports.

At $5.2 billion Nigeria’s current account deficit for the 4th quarter of last year topped the $3.34 billion recorded in the 3rd quarter of 2020 and is the highest since the $6.59 billion recorded in the 3rd quarter of 2019.

READ: Nigeria attracts more FDI than FPI for the first time in 4 years

Why the current account deficit widened

According to the CBN, the reason for the widening current account deficit was due to the return of commercial activities in the country following several Covid-19 induced lockdowns. This triggered a higher demand for goods and services piling pressure on Nigeria’s import bill.

“In the review period, the partial return to normalcy and gradual pick up in domestic economic activities exerted pressure on the current account, as demand for import of services inched up, thus, a relatively higher deficit in the current and capital accounts was recorded.” CBN

READ: CBN takes proactive step by introducing Clean Notes Policy

Specifically, the apex bank cited the import of petroleum products as a major contributory factor to the ballooning current account deficit.

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“The goods account witnessed a higher deficit of US$5.26 billion, resulting from increased import of both petroleum product and non-oil import. “ CBN

READ: U.S. budget suffers a deficit of $3.1 trillion in 2020, as pandemic slams the economy

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Key Highlights

  • According to the CBN the estimated deficit in the current account widened by 57.9% to US$5.27 billion (5.1% of GDP), compared with US$3.34 billion (3.2% of GDP) in the previous quarter, owing largely to higher services import bills.
  • The deficit in the services account also increased significantly to US$3.49 billion (3.3% of GDP), occasioned by higher payments for transportation and travels as economic activities gradually improved during the review period.
  • Nigeria last recorded a current account surplus in the second quarter of 2018 at $4.3 billion.

READ: Senate summons CBN Governor over Crypto ban

Why this matters

The widening current account deficits is a major contributory factor to Nigeria’s forex stability as it confirms there is more demand for dollars to import goods and services compared to export.

  • This could also lead to higher inflation due to the effect of the depreciation of the naira on prices of goods and services.
  • Nigeria will need to earn more in exports or attract forex inflows through remittances to cushion the effect of the deficits.
  • This perhaps is why the apex bank is focused on attracting forex inflows through its Naira4Dollar promo.

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Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

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Currencies

Naira remains stable across forex market as dollar supply improves significantly by 430%

Naira remained stable against the US Dollar at the NAFEX window on Thursday to close at N410.50/$1.

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Naira value

Thursday,15th April 2021: The exchange rate between Naira and the US Dollar closed at N410.50/1$ in the Importers and Exporters window, where forex is traded officially.

Naira remained stable against the US Dollar at the NAFEX window on Thursday to close at N410.50/$1 as there was no movement when compared to the rate that was recorded on Wednesday, as dollar supply improves significantly by about 430%.

Also, the naira remained stable against the dollar for the third day at the parallel market on Thursday, 15th April 2021 to close at N482 to a dollar, the same rate that was recorded on Wednesday, April 14, 2021.

READ: Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

Trading at the official NAFEX window

Naira remained stable against the US Dollar at the Investors and Exporters window on Thursday to close at N410.50 to a dollar. This was the same rate that was recorded on Wednesday, 14th April 2021.

  • The opening indicative rate closed at N410.50 to a dollar on Thursday. This represents an 86 kobo drop when compared to N409.64/$1 recorded on Wednesday.
  • Also, an exchange rate of N437.62 to a dollar was the highest rate recorded during intra-day trading before it closed at N410.50/$1. It also sold for as low as N392/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window rose significantly by 429.93% on Thursday, 15th April 2021.
  • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover increased from $21.92 million recorded on Wednesday, April 14, 2021, to $116.16 million on Thursday, April 15, 2021.

READ: Naira gains at NAFEX as oil prices record biggest single day loss in 11 months

Cryptocurrency watch

The world’s most popular digital currency, Bitcoin, went up by over 1% to close at $63,441 on Thursday evening as most investors still think it is a bubble.

  • Bitcoin had crossed the $64,000 mark on Wednesday after it traded past the $63,000 mark the previous day for the first time.
  • The Co-Founder and Managing Director of Nexo, Antoni Trenchev, had said that Bitcoin could hit $100,000 in the next 12 to 18 months.

Oil price gain

Brent crude oil price went up slightly on Thursday to close at $66.83 per barrel, indicating a 0.3% increase compared to $66.63 recorded at the close of trade on Wednesday as it trades at a one-month high.

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  • Oil extended its climb out of a month-long trading range with further signs of an accelerating rebound taking shape in the U.S.
  • Oil remains firmly above its most recent trading range, where it had been stuck near $60 a barrel since mid-March as some regions faced a resurgence in virus cases. Continued signs of a stronger U.S. market are also pushing prices higher.
  • Brent Crude closed at $66.83 (+0.38%), WTI Crude closed at $63.46 indicating 0.49% gain, Bonny Light, $64.79 (+3.56%), OPEC Basket (+2.46%) to close at $63.39 while Natural gas rose by 1.53% to close at $2,658

READ: Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

External reserve

Nigeria’s external reserve gained about $27 million on Wednesday, 14th April 2021 to close at $35.199 billion, being the highest external reserve position recorded in over a month.

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  • This indicates a 0.08% increase when compared to $35.172 billion recorded on Tuesday, 13th April 2021.
  • It also represents an increase in the country’s external reserve position for the 17th consecutive day, having endured a significant downturn earlier in the year. Nigeria’s reserve has added a total of about $783 million in 17 days.
  • This recent increase in Nigeria’s external reserve could however be attributed to the increase in crude oil prices recorded earlier in March before the recent bearish trade in the crude market.
  • It could be attributed to the possible increase in diaspora remittance as the CBN offers incentives for every unit of a dollar received in Nigeria from diaspora remittance.
  • The external reserve is likely to get a further boost, as the Federal Government recently announced plans to issue $500 million Eurobonds for 2021.

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Currencies

Naira appreciates at NAFEX as CBN sells forex to foreign investors, first in 2021

Naira appreciated against the US Dollar at the NAFEX window on Wednesday to close at N410.50/$1.

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Wednesday,14th April 2021: The exchange rate between Naira and the US Dollar closed at N410.50/1$ in the Importers and Exporters window, where forex is traded officially.

Naira appreciated against the US Dollar at the NAFEX window on Wednesday to close at N410.50/$1. This represents a 0.12% gain when compared to N411/$1 recorded on Tuesday, as the Central Bank of Nigeria in its first sale, in 2021, to foreign investors seeking to repatriate their funds abroad, sold $20 million to them according to Reuters.

Meanwhile, the naira remained stable against the dollar for the second day at the parallel market on Wednesday, 14th April 2021 to close at N482 to a dollar, the same rate that was recorded on Tuesday, April 13, 2021.

READ: Naira falls at NAFEX window as Bitcoin rises above $63,000, an all-time record high

Trading at the official NAFEX window

Naira appreciated against the US Dollar at the Investors and Exporters window on Wednesday to close at N410.50 to a dollar. This represents a 50 kobo gain when compared to N411/$1 recorded on Tuesday, 13th April 2021.

  • The opening indicative rate closed at N409.64 to a dollar on Wednesday. This represents a 6 kobo drop when compared to N409.58/$1 recorded on Tuesday.
  • Also, an exchange rate of N422 to a dollar was the highest rate recorded during intra-day trading before it closed at N409.64/$1. It also sold for as low as N392/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window dropped significantly by 59.05% on Wednesday, 14th April 2021.
  • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover declined from $53.53 million recorded on Tuesday, April 13, 2021, to $21.92 million on Wednesday, April 14, 2021.

READ: Naira gains at NAFEX window despite 26.2% drop in dollar supply

Cryptocurrency watch

The world’s most popular digital currency, bitcoin, reached another all-time high on Wednesday, touching $64,717.01 before coming down to $62,298.51 as of Wednesday evening ahead of Coinbase’s historic stock market listing in New York.

  • Bitcoin, which has been up and down over the last few weeks, crossed $64,000 on Wednesday after it had just yesterday, crossed the $63,000 mark for the first time.
  • The rally has come in anticipation of cryptocurrency exchange Coinbase’s hotly tipped US stock market listing.
  • Earlier on Wednesday, the price of Dogecoin, recorded a new milestone as it went up by 54%, establishing a new all-time high of $0.1161.
  • Meanwhile, Coinbase, a Cryptocurrency exchange, finally made its highly anticipated debut on Nasdaq on Wednesday, April 14, 2021, becoming the first company devoted entirely to cryptocurrency to enter the US stock exchange with a $100 billion valuation.

READ: Naira remains flat as external reserve fall to just 6 months of imports

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Oil price gain

Brent crude oil price jumped on Wednesday to close at $66.63 per barrel, indicating a 3.98% increase compared to $64.08 recorded at the close of trade on Tuesday as the Energy Information Administration (EIA) reports crude draw.

  • The EIA in its report said that crude oil inventories had shed 5.9 million barrels in the week to April 9, compared with an inventory draw of 3.5 million barrels reported for the previous week.
  • The EIA’s inventory estimate comes a day after the American Petroleum Institute reported a 3.6-million-barrel inventory draw in crude oil for the same period but a 5.565-million-barrel build in gasoline stocks, which prevented oil prices from swinging significantly up or down.
  • The oil rally can also be attributable to the picking up of US oil demand as economic expansion quickens. The West Texas Intermediate (WTI) crude futures surged more than 5% on Wednesday and broke out the narrow trading range they had been stuck in since mid-March.
  • Morgan Stanley, meanwhile, said in a new note that it expected prices to remain range-bound through the end of the summer, at between $65 and $70 per barrel for Brent.
  • Brent Crude closed at $66.63 (+4.65%), WTI Crude closed at $63.18 indicating 4.99% gain, Bonny Light, $62.56 (+0.58%), OPEC Basket (+0.67%) to close at $61.87 while Natural gas declined by 0.08% to close at $2,617

External reserve

Nigeria’s external reserve gained about $34 million on Tuesday, 13th April 2021 to close at $35.172 billion, being the highest external reserve position recorded in over a month.

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  • This indicates a 0.1% increase when compared to $35.138 billion recorded on Monday, 12th April 2021.
  • It also represents an increase in the country’s external reserve position for the 16th consecutive day, having endured a significant downturn earlier in the year. Nigeria’s reserve has added a total of about $756 million in 16 days.
  • This recent increase in Nigeria’s external reserve could however be attributed to the increase in crude oil prices recorded earlier in March before the recent bearish trade in the crude market.
  • It could be attributed to the possible increase in diaspora remittance as the CBN offers incentives for every unit of a dollar received in Nigeria from diaspora remittance.
  • The external reserve is likely to get a further boost, as the Federal Government recently announced plans to issue $500 million Eurobonds for 2021.

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