Nigeria’s balance of payments account reached a surplus of $3.68 billion in the third quarter of 2021, after suffering recurrent account deficits for the past 10 quarters (since the first quarter of 2019). This is according to data gathered from the Central Bank of Nigeria (CBN).
According to the report, Nigeria recorded its first current account surplus in almost three years, as the combination of an increase in the net external trade balance, diaspora remittances and lower remittance outflows resulted in a net balance of $3.68 billion.
The current account balance recorded in the third quarter of 2021 represents a significant increase from the deficit of $424.37 million recorded in the previous quarter and even a larger increase from the deficit of $3.62 billion printed during the corresponding period of 2020.
At the same time, the significant improvement in the country’s net balance of payments can be attributed to the increase recorded in its net foreign trade. The net property account improved by 66.9%, from $1.06 billion recorded in Q2 2021 to $1.77 billion in Q3 2021.
However, it should be noted that the positive trade account was due to lower capital outflows on goods and services as opposed to an increase in export earnings. In particular, imports of non-petroleum products decreased by 17%, from $9.31 billion to $7.73 billion.
Additionally, net spending on foreign services fell to $2.51 billion during the reporting period from $4.67 billion recorded in the prior quarter.
Spending on foreign services falls to record low
Nigeria’s spending on foreign services declined significantly in the third quarter of 2021, pushing the country’s current account balance further from a deficit position into a surplus. Nigerians spent a sum of $3.43 billion on foreign services during the reporting period, down 38.1 percent from the $5.55 billion recorded in the previous quarter.
In the same vein, despite the increase in travel activities across the globe, Nigerians’ expenditure on business trips abroad decreased by 62.8% to $57.11 million, which represents a record level with the exception of the second and third quarters of 2020 which were obviously affected by the containment measures in most countries. country of the world.
Similarly, expenditure on medical services abroad decreased by 68.6% to $84.82 million from $270.23 million recorded in the previous quarter.
Additionally, overseas education spending fell 43.7% from $717.83 million recorded in Q2 2021 to $403.93 million in Q3 2021. Meanwhile, education still accounts for a large portion of spending on foreign services, indicating the level of capital flight and the thirst for foreigners. degrees acquired by Nigerians.
The decline of some of these foreign services, which had swallowed up a large share of the foreign currency available in the country, is now on a downward trend, further supporting the current account and serving as relief for its exchange rate.
Nairametrics previously predicted a positive current account balance for the third quarter of 2021, following the recovery in the crude oil market and improving diaspora remittances. Nigeria’s current account deficit had fallen to its lowest level in more than two years in the second quarter of 2021.
The current account balance stood at a deficit of $424 million in the second quarter of 2021, representing a significant jump from a deficit of $2.1 billion in the first quarter of 2021. Meanwhile, the Positive movement at the time was attributed to increased crude oil export earnings.
Notably, crude oil exports increased 73% quarter-on-quarter in the second quarter of 2021, from $6.48 billion to $11.22 billion. Compared to the corresponding period of 2020, crude oil exports increased by 116.7% to $4.31 billion.
What does that mean
A positive current account or balance of payments is highly desired by any economy and is a welcome development for the Nigerian economy as it indicates a net inflow of foreign currency into the economy.
Recall that Nigeria was suffering from a forex crisis since the outbreak of the covid-19 pandemic, due to falling crude oil prices, halt in economic activities, downward trend in inflows of foreign capital.
What you need to know about BOP
The balance of payments (BOP) is a statement that records all monetary transactions made between the residents of a country and the rest of the world during a given period. It is ideal for measuring whether a country has a surplus or a deficit of funds.
- It measures inflows and outflows of goods, services, investment income and transfer payments.
- There are basically three components of the balance of payments, namely the current account, the capital account and the financial account.
- A balance of payments statement can be used as an indicator to determine whether the country’s monetary value is appreciating or depreciating.