Current account comfortably in surplus

We observe from the balance of payments for Q1 2017 that the current-account surplus eased gently from the equivalent of 3.5% of GDP to 3.4%. This recovery from the earlier deficits is explained by a rebound in oil exports, a further compression in merchandise imports and stronger inward transfers. We see the classic lag between the initial slump in oil export revenues and the crash in imports. Merchandise exports fell sharply from Q4 2014, and the nosedive in imports began in Q4 2015. In a forthcoming daily note we will examine trends on the capital account.

The share of oil and gas exports in GDP has crashed from 18.5% in Q4 2012 to just 9.6% in Q4 2016. A modest recovery to 10.8% in Q1 is attributable to a pick-up in oil production and the further contraction in GDP.

The compression of import demand does point to some success for the FGN’s substitution policy, one example being rice cultivation. However, the greater influence would have been what we term involuntary substitution.

Drilling down into the outflow on services in Q1 2017, we find a sharp decline in business travel outflows to US$61m from US$655m two years earlier. Similar trends are discernible for health and education related expenditure. The picture should change now that the CBN is making fx regularly available for the retail segment.

Net current transfers, which are mostly workers’ remittances, have held up better than expected, at more than 5% of GDP for three successive.

We see current-account surpluses representing 3.1% of GDP this year and 1.2% for 2018, when imports are expected to recover. The forecasts of the IMF from April are 1.0% in both years, and those of Fitch Ratings from March are a deficit of -0.7% this year and a surplus of 0.9% in 2018.

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