Normalization on the services account

Data from the CBN show that the deficit on the services account of the balance of payments (BoP) has widened from US$1.87bn in Q4/16 to US$4.45bn in Q1/18. Rather than being a cause of alarm, the widening reflects the transformed availability of fx as a result of the CBN’s reforms in early 2017. A substantial pipeline of pending transactions was cleared. The broader point is that, while the tertiary (services) segment is the largest in the economy, accounting for 54% of constant price GDP in Q1/18, all formal sectors have a high import requirement.

  • If we take personal travel, defined in the BoP as being related to health, education and other purposes, debits soared from US$120m in Q4/16 to US$1.93bn in Q3/17 before easing to US$1.30bn in Q1/18 as the pipeline was cleared.
  • A similar trend is evident for debits for business travel: US$180m in Q4/16, US$2.23bn in Q3/17 and US$1.48bn in Q1/18.
  • The debits for freight (sea transport) are constant, at US$500m to US$600m per quarter, throughout the period. If there was a pipeline, it was small in comparison.
Transactions on the services account (US$ bn)

Sources: IMF, World Economic Outlook, Jul 2018 update; FBNQuest Capital Research
  • The chart shows that credits on the services account enjoyed a short-lived recovery last year but subsequently retreated. They are principally travel and sea transport related.
  • Some emerging economies boast substantial services credits on the BoP. Examples include tourism, insurance and outsourcing such as call centres and IT support, in which India has taken the lead. We should also mention the Nigerian film industry, said to be the most prolific globally: the BoP shows a quarterly peak of US$35m in the period for credits for personal, cultural and recreational services.


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