Afrinvest, in its 2021 Nigerian Banking Sector Report, has projected that Nigeria will record a current account deficit of $9.1 billion in 2021.
This would be an improvement compared to $16.98 billion recorded in the previous year.
Current account deficit occurs when the total value of goods and services a country imports exceeds the total value of goods and services it exports.
The report, which is titled “Resilience Amidst Endemic and Pandemic Constraints” projected Nigeria’s current account deficit at $9.1 billion due to our huge importation bill, which is estimated at $5.6 billion monthly.
According to the report, in 2020, Nigeria booked a Current Account (CA) deficit of US$17.0 billion, which translates to 4.2% of the 2020 nominal GDP of N154.0 billion. By disaggregating the CA into component parts – Goods Trade, Services, Income, and Transfers Account – three recorded deficits, led by the Goods Trade account with a deficit of US$16.4 billion (2019: US$2.2 billion).
It said the sharp jump in the Goods Trade account deficit was driven by a 44.1% y/y decline in earnings from crude oil exports to US$26.8 billion (2019: US$47.9 billion), while refined oil imports remained disproportionately high at US$52.3 billion, despite moderating 15.7% y/y.
However, the deficit on the Services Trade and Income accounts moderated to US$15.8 billion and US$5.8 billion respectively, relative to US$33.8 billion and US$12.5 billion in 2019. The report attributed the decline in Services Trade account deficit to the restriction on trans-border travels in most part of 2020, while the tapering of Income accounts deficit was driven by the aggressive management of FX by the CBN.
On the other hand, the Current Transfers account emerged as the lone account with a surplus, albeit it recorded a 20.3% y/y moderation to US$21.0b billion (2019: US$26.4 billion).
Although the stabilisation of crude oil prices above US$60.00/bbl. may support improved earnings from exports in Q3 & Q4:2021, yet we see the huge importation bill (estimated at US$5.6bn/month) and weak portfolio flows to sustain the deficit gap in 2021. Hence, we project a CA deficit of US$9.1bn in 2021, the report said.