The foreign exchange market may be under pressure and the economy at risk following a significant turnaround in the country’s position as the overall Balance of Payments (BOP) estimates for the third quarter of (Q3) of 2018 swung into a deficit of $4.54 billion compared to surpluses of $503.97 million recorded in the preceding quarter and $2.78 billion in the corresponding period of 2017.
The balance of payment statistics for the third quarter released by the Central Bank of Nigeria (CBN) on Friday show that current account balance (CAB) worsened from a surplus of $4.45 billion in the second quarter (Q2) of 2018 to a deficit of $3.10 billion in Q3 2018.
This means that Nigeria lost more money to other countries, through trade, services and capital flows during the period than it received from other countries through these sources.Net out-payments for services during the review period increased significantly by 35.4 per cent to a deficit of $7.02 billion when compared with the level recorded in Q2 2018. When compared with the corresponding period of 2017, it indicated a much higher increase of about 65.0 per cent.
“This is not good for the Nigerian economy as it places pressure on the foreign exchange market, shows the vulnerabilities of the Nigerian economy and also show the low level of confidence on the Nigerian economy,” Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited said.
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He said it is also worrisome to note that the country recorded deficit in its current account balance during the period as payments for imports increased significantly while exports increased marginally.
“The development also calls for urgent measures to make the Nigerian economy more productive, attractive, and to develop non-oil export oriented sectors,” Akinwunmi said in an emailed response to BusinessDay.
The financial account balance indicated an increased net incurrence of financial liabilities of $10.72 billion in the review period as against $2.57 billion recorded in the preceding period. The current account indicated a negative outcome during the review period, recording a deficit of $3.10 billion as against surpluses of $4.45 billion and $1.97 billion in the previous quarter and corresponding period of 2017, respectively.
This development was largely attributable to the increased payments for imports. Johnson Chukwu, managing director, Cowry Asset Management Limited, said new capital flows is diminishing as portfolio investors exit the country on heightened political risk due to the upcoming general elections.
Chukwu who spoke with BusinessDay by phone said the development may reverse after the elections but for the meantime, the country should expect further deficit in balance of payment. “This will last till first quarter of next year,” he added.
Portfolio Investments inflow to the economy decreased significantly to $1.79 billion in Q3 2018 from $4.23 billion and $3.32 billion in the preceding quarter and the corresponding period of 2017, respectively, according to the CBN’s report.
The report revealed that Direct Investments inflow increased by 0.7 per cent to $438.84 million when compared with the preceding quarter of 2018. It however, indicated a decline of 45.0 per cent when compared to the corresponding period of 2017.
Furthermore, the deficit in the income account (net) increased by 6.7 per cent to $4.16 billion in the review period from a deficit of $3.89 billion recorded in the preceding quarter. When compared with the level in the corresponding period of 2017 it indicated an increase of about 39.5 per cent.
The surplus in the current transfers (net) decreased by 1.2 per cent to $5.95 billion in Q3 2018 when compared with the preceding quarter. However, the level of surplus was 2.7 per cent higher than the level recorded in the corresponding period of 2017.
The surplus in the goods account decreased significantly to $2.12 billion in Q3 2018 from surpluses of $7.51 billion in the preceding quarter and $3.42 billion recorded in the corresponding period of 2017.
Export earnings rose by 2.8 per cent to $16.21 billion in Q3 2018 when compared with Q2 2018. It also indicated an increase of about 35.3 per cent when compared to corresponding period of 2017. Earnings from crude oil and gas, which accounted for 94.4 per cent of total export earnings during the review period, increased by 9.5 per cent to $15.30 billion in Q3 2018 when compared with the preceding quarter.
According to the report, earnings from non-oil and electricity exports decreased by 49.3 per cent to $909.04 million in Q3 2018 when compared with the preceding quarter.
Available data showed that payments for import of goods (fob) to the economy in the review period increased by 70.5 per cent to $14.08 billion above the level recorded in the preceding quarter. This was largely as a result of 79.7 per cent increase in the imports of non-oil products.
