Nigeria’s balance of payment account has hit a surplus of $3.68 billion in the third quarter of 2021, after enduring recurrent account deficits in the past 10 quarters (since Q1 2019). This is according to data collected from the Central Bank of Nigeria (CBN).
According to the report, Nigeria recorded its first current account surplus in almost three years, as the combination of an increase in net foreign trade balance, diaspora remittances and decline in fund outflows resulted to a $3.68 billion net balance.
The current account balance recorded in Q3 2021, represents a significant increase compared to the $424.37 million deficit recorded in the preceding quarter and even a bigger uptick compared to $3.62 billion deficit printed in the corresponding period of 2020.
Meanwhile, the significant improvement in the country’s net balance of payment can be attributed to the increase recorded in its net foreign trade. The net goods account improved by 66.9% from $1.06 billion recorded in Q2 2021 to $1.77 billion in Q3 2021.
However, it is worth noting that the positive trade account was due to the decline in capital outflows on goods and services as opposed to an increase in export earnings. Notably, importation of non-oil products decreased by 17% from $9.31 billion to $7.73 billion.
Also, the net expenses on foreign services dropped to $2.51 billion in the review period compared to $4.67 billion recorded in the previous quarter.
Expenses on foreign services fall to a record low
Nigeria’s expenses on foreign services declined significantly in Q3 2021, further elevating the country’s current account balance from a position of deficit to a surplus. Nigerians spent a sum of $3.43 billion on foreign services in the review period, which is 38.1% lower than $5.55 billion recorded in the previous quarter.
In the same vein, despite the increase in travelling activities across the world, Nigerians’ spending on foreign business travels reduced by 62.8% to $57.11 million, representing a record low except for Q2 and Q3 2020 that was obviously affected by the lockdown measures in most countries of the world.
Similarly, expenses on foreign medical services declined by 68.6% to $84.82 million as opposed to $270.23 million recorded in the previous quarter.
In addition, foreign education expenses dropped by 43.7% from $717.83 million recorded in Q2 2021 to $403.93 million in Q3 2021. Meanwhile, education still accounts for a large portion of the expenses on foreign services, indicating the level of capital flight and thirst for foreign acquired degrees by Nigerians.
The decline in some of these foreign services, which had engulfed a significant portion of FX available in the country, is now experiencing a downtrend further supporting the current account and serving as a relief for her exchange rate.
Nairametrics had earlier predicted a positive current account balance for the third quarter of 2021, following the rally in crude oil market and improvement in diaspora remittances. Nigeria’s current account deficit had dropped to its lowest level in over two years in Q2 2021.
The current account balance stood at a deficit of $424 million in Q2 2021, representing a significant leap compared to a deficit of $2.1 billion in Q1 2021. Meanwhile, the positive movement at the time was attributed to the increase in crude oil export earnings.
Notably, crude oil export increased by 73% quarter-on-quarter in Q2 2021 from $6.48 billion to $11.22 billion. Compared to the corresponding period of 2020, crude oil export increased by 116.7% from $4.31 billion.
What this means
A positive current account or balance of payment is very much desired by any economy and is a welcomed development for the Nigerian economy, as it indicates a net inflow of foreign exchange into the economy.
Recall that Nigeria had been suffering from a forex crunch since the outbreak of the covid-19 pandemic, owing to crash in crude oil prices, halt in economic activities, downtrend in foreign capital inflows.
What you should know about BOP
Balance of Payment (BOP) is a statement that records all the monetary transactions made between residents of a country and the rest of the world during any given period. It is ideal in measuring whether a country has a surplus or deficit of funds.
- It measures the inflow and outflow of goods, services, investment incomes, and transfer payments.
- There are basically three components of the balance of payment, which are the current account, capital account, and financial account.
- A balance of payment statement can be used as an indicator to determine whether the country’s currency value is appreciating or depreciating.