Nigeria’s current-account deficit narrowed in Q1′ 21 from -4.7 per cent to -1.8 per cent of GDP.
This was the result of lower net outflows for trade, services and income, together with a welcome pick-up in net transfers (workers’ remittances and general government transactions).
According to Proashare Nigeria limited, Nigeria is fairly new to regular deficits on the current account: they used to mark a particularly sharp fall in oil export revenue, as in 2015, but have become almost structural.
“This is the ninth in a row, bringing additional pressures onto reserves and the exchange rate. It flags the FGN’s limited success in diversifying the economy away from oil and gas.
“Running above USD2bn per quarter pre-COVID, they have been hit by the legacy of the earlier land border closures in addition to the pandemic.
“The trade deficit declined due largely to a fall of more than USD 3.0 billion in non-oil merchandise imports” Proashare said.
The deficit on services has shrunk because Nigerian households and businesses have made limited use of the allowances available for health, education and corporate expenses during the pandemic.
The Analysts said “Once ‘normal’ life and travel resumes, we would expect the deficit to return to previous levels.
“The net deficit on income of USD 680 million in Q1 was the lowest in the CBN’s data series that runs back to 2008. Rather than being a cause for celebration, this probably reflects the reality that foreign companies have deferred the repatriation of dividends and other investment income due to the challenge of accessing fx since March ’20. Reduced corporate profitability would surely be another factor”.