Service sector outflows drag down Nigeria’s current account balance in 2yrs
Ris in gout flow sin the nigerian services sector was a major factor that saw Nigeria’ s current account into negative zone, according to a report earlier released by the Central Bank of Nigeria (CBN).
The Q3 2018 report revealed that Nigeria’s current account dipped significantly by 257 percent year-on-year (y/y) to a deficit of N948.74 billion against a surplus of N602.5 billion in corresponding period of 2017. Quarter-onquarter (q/q), her current account recorded a fall by 170 percent from N1.36 trillion recorded in Q2 2018.
Meanwhile, Nigeria’s service account recorded a deficit increase by 36 percent to N2.146 trillion from N1.58 trillion q/q. To this end, the service account stood as the biggest deficit recorded in the Nigeria’s current account. Also, y/y deficit increased by 65 percent from N1.29 trillion.
The Nigeria current account trend has shown that since 1999, Nigeria recorded current account deficits in 2002, 2005 and 2015. Deficit reported in Q3 2018 therefore is the first in the last 2 years.
According to report by the National bureau of statistics( nbs ), deficit was driven by a 70.5 percent q/q surge in merchandise imports, as the result of imports of drilling platforms for the energy sector.
However, from data generated from the CBN’S latest Quarterly Statistical Bulletin, sharp increase in freight debit by 78 percent to N293.7 billion ($960m) in Q3 from N164.5 billion ($540m) the previous quarter. This was the largest growth under the service accounts section of the current account.
A country’s current account reflects balance of trade and earnings on foreign investment. a deficit in current account due to spending more of its currency on importing products than it is earning through sale of exports causes depreciation.
Business day analysis of periods with negative current accounts since 2000 has revealed significant devaluation of the naira against the dollars. In 2002, naira recorded de valuation by 8 percent in value as current account recorded deficit of N117 billion.
In 2015, the value of naira also declined by 21 percent as current account dipped to a deficit ofn 3.03 billion. This further increases the possibilities of a further decline in the value of naira in 2019, approving analysts’ view on naira devaluation.
A second reason for the marked increase in total services debits in Q3 from $6.34 billion to $8.59 billion can be found in the segment for personal travel: debits rose from $1.78 billion to $2.52 billion over the quarter.
According to Fbnquest, “This underpins a point we have frequently made. business travel deb- its were little changed, reflecting the weakness of the broader economy, while spending on personal health and education needs has soared.
“The CBN makes FX available on a regular basis to retail for invisibles. Debits for both health and education have been steadily rising, and have totalled $1.30 billion and $3.51 billion over the past four quarters, respectively.”
Several emerging economies boast substantial services credits on the current account. Egypt, for example, has reported a services surplus for 2017/18 (July-june) of $11.1 billion, compared with $5.6 billion the previous year, on the back of Suez Canal receipts of $5.7 billion and a positive balance on travel (tourism) of $7.4 billion.
“Nigeria will not become a leading destination for foreign tourists in a hurry. Its best bet on the services account is probably monetising the film industry,” FBNquest said.