Nigeria is projected to record a current account deficit of $9.1 billion in 2021, an improvement compared to $16.98 billion recorded in the previous year. This is according to the 2021 Nigerian Banking Sector Report by Afrinvest.
The report, which is titled “Resilience Amidst Endemic and Pandemic Constraints” projected Nigeria’s current account deficit at $9.1 billion due to our huge importation bill, which is estimated at $5.6 billion monthly.
Recall that Nairametrics had reported that Nigeria’s current account deficit dropped to $424 million in Q2 2021, driven by a significant rise in crude oil exports of $11 billion. According to data from the Central Bank of Nigeria, the nation’s current account deficit stood at $2.52 billion in H1 2021, largely affected by a huge gap recorded in Q1 2021.
What the report says
In 2020, Nigeria booked a Current Account (CA) deficit of US$17.0 billion, which translates to 4.2% of the 2020 nominal GDP of N154.0 billion. By disaggregating the CA into component parts – Goods Trade, Services, Income, and Transfers Account – three recorded deficits, led by the Goods Trade account with a deficit of US$16.4 billion (2019: US$2.2 billion).
The sharp jump in the Goods Trade account deficit was driven by a 44.1% y/y decline in earnings from crude oil exports to US$26.8 billion (2019: US$47.9 billion), while refined oil imports remained disproportionately high at US$52.3 billion, despite moderating 15.7% y/y.
However, the deficit on the Services Trade and Income accounts moderated to US$15.8 billion and US$5.8 billion respectively, relative to US$33.8 billion and US$12.5 billion in 2019. The report attributed the decline in Services Trade account deficit to the restriction on trans-border travels in most part of 2020, while the tapering of Income accounts deficit was driven by the aggressive management of FX by the CBN.
On the other hand, the Current Transfers account emerged as the lone account with a surplus, albeit it recorded a 20.3% y/y moderation to US$21.0b billion (2019: US$26.4 billion).
“Although the stabilisation of crude oil prices above US$60.00/bbl. may support improved earnings from exports in Q3 & Q4:2021, yet we see the huge importation bill (estimated at US$5.6bn/month) and weak portfolio flows to sustain the deficit gap in 2021. Hence, we project a CA deficit of US$9.1bn in 2021,” States the report.
What this means
The continuous gap between the inflow and outflow of funds in Nigeria, which has seen us maintain recurrent deficit in the past 10 quarters, means that we are spending more to other countries of the world compared to what we are receiving. This serves as a major problem for our foreign reserve and by extension, the exchange rate.
Meanwhile, with the rally at the crude oil market, trading over $70 per barrel, we are likely to see an uptick in crude export earnings, which would help moderate the current account deficit.