Nigeria’s current account stayed under pressure in the first quarter of the year to stand at a deficit of $1.75 billion, underpinned by a huge trade deficit, along with a decline in foreign direct investments and remittances.
Africa's largest economy has recorded continuous current account Balance of Payment (BoP) deficits for 9 consecutive quarters, since Q1 2019, summing up to a deficit of $33.35 billion in just two years. This could be largely attributed to a massive gap in Nigeria’s trade balance.
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 a good way to measure whether a country has a surplus or deficit of funds.
However, this recent deficit is the lowest recorded since Q1 2019, which beams hope that our net current account could enter into positive territories soon. Net current account declined from a deficit of $5.26 billion recorded in Q4 2020 to a deficit of $1.75 billion in Q1 2021.
A breakdown of the statement showed that goods export decreased by 8.6% (QoQ) from $8.44 billion recorded in Q4 2020 to $7.71 billion in Q1 2021. It also showed that net financial account surged to $7.87 billion in Q1 2021, from a deficit of $3.37 billion recorded in the previous quarter.
Net errors and omissions stood at -$6.14 billion in Q1 2021 from $8.64 billion recorded in the prior period, while foreign receipt from services stood at $1.19 billion in the review period while Nigeria’s services payment stood at $4.09 billion, indicating a current account service deficit of $2.9 billion.
The nation's current account deficit is largely buoyed by heavy dependence on the importation of foreign items, while our major source of export earnings is crude oil, which is highly volatile in price.
Nigeria recorded its highest trade deficit on record in Q1 2021, due to a significant surge in its import bill. It was notable that Nigeria’s imports in the first quarter skyrocketed by 54% year-on-year to N6.85 trillion, leading to a trade deficit of N3.94 trillion.
The frail state of the economy has also diminished investors’ sentiments towards investing in Nigeria. With red flags such as galloping inflation, negative returns at the local bourse, insecurity in most areas of the country, an unfriendly business environment, and a host of other policies that further pushed Nigerians into poverty, it's not hard to imagine this happening.
Consequently, Africa's most populous country has seen a significant decline in foreign inflows, while diaspora remittances have also dipped significantly, which has depleted our foreign reserves to a record low, putting pressure on the local currency.
The International Monetary Fund (IMF) mission to Nigeria advised in 2020 that the country needs to embrace the broad market and exchange rate reforms to address recurrent Balance of Payment (BOP) pressures and raise the medium-term growth path.
In a statement by the Mission Chief for Nigeria at the International Monetary Fund (IMF), Ms. Jesmin Rahman, she noted that the low crude oil prices in 2020 had negatively affected Nigeria’s Balance of Payments pressures, also citing the lockdown measures which stalled economic activities in the country.