NSR H1 2021 Excerpts - Balance of Payment - Deficit set to print higher
Nigeria Strategy Report – H1 2021 Excerpts
Domestic Economy and Markets
- In today’s cut-out of our core strategy document – The Nigeria Strategy Report, we focus on developments in the domestic environment, highlighting our views on Nigeria’s current and financial accounts position.
- Nigeria’s current account deficit is expected to record a new high in FY2020 following the significant deterioration in export earnings largely driven by the covid-19 pandemic. As at H120, the current account balance recorded a total deficit of $8.9 billion, which is worse than the $7.4 billion deficit posted in the comparable period in 2019. Asides being the deepest contraction in the current account balance since H115 (-$7.7billion), Q220 deficits of $3.2 billion marks the sixth consecutive quarterly deficits we have seen; the longest since Q415.
- Export earnings are set to improve in 2021 relative to 2020 levels as global economy rebounds. We project total export earnings in 2021 to print at $51.9 billion, 33% higher than 2020 levels. Our forecast is premised on our expectations of higher Brent oil prices ($52.47 in 2021 vs $43.92 in 2020) which has recently crossed the $50/barrel mark on the back of the covid-19 vaccine success rate. Also, we think that the expected recovery in the global economy should translate into increased crude oil demand especially in H221, which should give the OPEC+ more legroom to ease on production cut. Thus, we estimate oil export to grow by 31% YoY to $43.3 billion as improved oil production (1.90mbpd vs 1.81mbpd) combined with higher prices support earnings. Similarly, we envisaged an improvement in non-oil export as non-oil GDP numbers improve. This should be supported by both the monetary and fiscal initiatives embarked upon by the government to accelerate the recovery of the economy from a recession. However, we estimate FY21E current account deficit to increase by 5% YoY to $22.1 billion. Despite the expected recovery in export, we expect the improvement in trade deficit to be neutered by the services and income leg. Our view is premised on CBN’s expansionary policies which should support improvement in business activities and domestic demand as the impact of covid-19 fades.
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