Nigeria’s Current-Account deficit narrowed in the Second Quarter (Q2) of 2020 as exports again dropped faster than imports amid a global economic slowdown caused by the coronavirus outbreak.
The current-account balance — the broadest measure of trade in goods and services — had a gap of -$3.23 billion in Q2, 2020, down a bit from -$4.881 billion in Q1 2020, but worse than the -$2.719 billion gap a year ago in Q1, 2019.
The deficit was also lower compared to the $6.95 billion gap recorded in Q4, 2019, according to Central Bank of Nigeria (CBN), quarterly Balance of Payments data seen by MoneyCentral.
The Current account deficit reflects high import bills which has implications for exchange rate stability and Nigeria’s competitiveness.
Why it Matters
A current account tallies the value of a country’s exports of goods and services against its imports (also known as the trade balance), then throws in a few other measures such as the interest it pays on debt.
If the result is less than zero the country has a current-account deficit; if it’s positive it’s known as a surplus. The current account is one element of a nation’s balance of payments, the broadest measure of its transactions with the rest of the world.
Since the tally must essentially balance out, any shortfall represents the share that’s financed, generally through either private or government debt sold overseas.
One problem with a country like Nigeria posting persistent current account deficits is that foreign investors can end up owning a big share of assets, making a country’s stock and bond markets vulnerable to the when those investors choose to pull their funds, which can cause bond yields to surge and put pressure on the currency, leading to rising inflation.
The current account was in deficit to the tune of $17 billion for the whole of 2019.