Nigeria’s projected current account deficit will remain at an average of 0.3 percent of Gross Domestic Product (GDP) in 2023–25 as a result of declining prices and stagnant oil production, the World Bank said in a new report.
A current account deficit refers to when the total value of goods and services a country imports exceeds the total value of exports.
Nigeria, the largest African oil producer, is not expected to reach a current account surplus in 2022, the World Bank said, adding that the country’s higher crude oil export revenues are more than offset by higher imports of refined petroleum products, lower remittances, and lower capital inflows.
The most recent data from the CBN shows that Nigeria’s current account moved to a deficit of -$603 million in the third quarter of (Q3) of 2022 from a revised surplus of $861 million in the second quarter of 2022.
On a standardised basis, according to a report by FBNQuest, the current account deficit is equivalent to -0.5 percent of GDP. A striking observation is that the balance of payments (BOP) data series for Q3 2022 contains significant revisions to the initial data provided for Q2 2022. For instance, the latest BOP data show a current account deficit of -1.1 percent of GDP in Q1 2022 compared with a surplus of 2.4 percent previously. It also shows a smaller current account surplus of 0.8 percent in Q2 2022 compared with 4.7 percent previously.
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“A significant implication of the revisions is that, in contrast to the five consecutive quarters of current account surpluses suggested by the Q2 data, the string of current account surpluses that started in Q2 2021 was broken by a current account deficit in Q1 2022,” analysts at FBNQuest said.
The FBNQuest report stated that the net deficit on the income account increased to -$3.5 billion from -$2.6bn in Q2 2022 primarily due to a higher net outflow of -$3.8bn related to investment income, mostly dividend repatriations.
The surplus on the trade account declined by -16 percent q/q to $1.5bn, due to a -22 percent q/q reduction in merchandise export to $14.2bn from $18.2bn in Q2 2022, the report said, adding that proceeds from crude oil and gas exports which accounted for 91 percent of total merchandise exports declined by -20 percent q/q to $12.9bn from $16.2bn in Q2 2022.
According to OPEC data from secondary sources, Nigeria’s crude oil output dropped to a little under 1.06 million barrels per day (mbpd) in Q3 2022 from 1.2mbpd in Q2 2022. Also, the average oil price declined by -9 percent q/q during Q3.
Imports of goods declined by -22 percent q/q to $12.7bn, clearly reflecting the ongoing difficulties with FX liquidity.
“Beyond Q3, we expect the current account to post a larger deficit in Q4 2022, due to the issues with low oil productivity and a -15 percent q/q reduction in oil prices during the quarter,” the analysts said, adding that Q3, although the current account deficit was driven by a combination of factors, the two primary drivers were a deterioration in the income account and a smaller surplus in the trade account.
The World Bank said the Nigerian economy is set to grow by 2.8 percent in 2023, down from 3.3 percent in 2022, and to accelerate slightly to an average annual rate of 3 percent in 2024–25.
This, it said translates into growth per capita of 0.2 percent in 2023 and 0.4 percent in 2024–25, which is insufficient to reduce extreme poverty in the country. Growth will continue to be driven by services, trade, construction, manufacturing, and agriculture. Oil production is projected to remain subdued in 2023, because of inefficiencies and insecurity, and recover slightly in 2024– 25. On the production side, growth in 2023 will be supported by industry (with growth of 5.6 percent) with the mega-refinery project.
“Growth conditions, however, remain insufficient to reduce extreme poverty and boost shared prosperity in the medium to long term. The estimated per capita income growth in Sub-Saharan Africa of 1.0 and 0.6 percent in 2022 and 2023, respectively, is inadequate to have a significant impact on the twin goals. The low growth elasticity of poverty and the global pandemic further contributed to the slow pace of poverty reduction in the region,” the World Bank report said.
Sub-Saharan Africa’s poverty headcount ratio is projected at 34 percent in 2023, compared to the COVID-19 peak of 35.3 percent in 2020. The sluggish recovery of income per capita in the region, at 1.2 percent next year and 1.4 percent in 2025, still falls short of accelerating poverty reduction to its pre-pandemic path.
The new report titled Africa’s Pulse, is an analysis of issues shaping Africa’s economic future, and was produced by the Office of the Chief Economist for the Africa Region under the overall guidance of Victoria Kwakwa and Ousmane Diagana. The team for this edition of Africa’s Pulse was led by Andrew L. Dabalen and Cesar Calderon. The core team included James Cust, Megumi Kubota, and Vijdan Korman.
