Citing expected improvements in the country’s oil exports, the implementation of the African Continental Free Trade Area (AfCFTA) agreement, as well as the likely commencement of operations at Dangote Refinery, analysts at CSL Research have predicted a decline in Nigeria’s current account deficit to 1.2 per cent of Gross Domestic Product (GDP) this year.
The analysts made the prediction while commenting on the balance of payment report for Q1’21 recently published by the Central Bank of Nigeria (CBN). They stated: “Nigeria’s external position improved in the first quarter of the year, as the CBN’s published balance of payment report indicated that the current account deficit moderated to $1.75 billion (1.7 per cent of GDP) from $5.26 billion (5.0 per cent of GDP) in Q4’20. “Analysis of the breakdown showed that the trade deficit was 4.0 per cent of GDP from 5.4 per cent in the prior quarter.
The deficit was driven by weakened export earnings, which declined by 8.7 per cent q/q. This is concerning as the export value was lower than the pandemic level when global trade almost came to a halt. While the crude oil price is at a 2-year high of $74.43bbl, the OPEC+ agreement continues to place a cap on oil earnings, as oil production (excluding condensate) settled at 1.4mb/d in Q1.
“On the flip side, foreign outflows reduced, as imports declined by 18.7 per cent q/q. For us, this depicts two things; (1) domestic consumption (c.60 per cent of GDP) is yet to recover to pre-pandemic levels and (2) intensified FX control by the CBN. Also, remittances (+5.6 per cent q/q) are gradually recovering, reflecting the improved wellbeing of Nigerians in the diaspora and the likely impact of CBN’s Naira 4 Dollar scheme.