Nigeria records a current account surplus of $5.14 billion (11.46% of GDP) in Q2 2024, marking a significant increase from the $3.38 billion (7.35% of GDP) surplus reported in the previous quarter, according to data from the Central Bank of Nigeria (CBN).
This surplus reflects improvements in the nation’s external balance, driven by a reduction in import bills and steady remittance inflows, helping to maintain the stability of the naira, which stays within the N1,450-N1,500 range.
Amid ongoing economic challenges, this surplus signals potential for greater forex stability in the short term.
Trade Surplus Drives Current Account Improvement
The primary contributor to Nigeria’s current account surplus is a strong trade surplus, bolstered by lower merchandise imports and higher crude oil prices. While crude oil production decreases from 1.33 million barrels per day (mbpd) in Q1 to 1.27 mbpd in Q2, the price of Bonny Light crude increases slightly, rising to $86.97 per barrel from $85.58 in the previous quarter. This price increase partially offsets the revenue shortfall from reduced production.
Merchandise imports drop by 20.59%, from $10.88 billion in Q1 to $8.64 billion in Q2, driven by a decrease in petroleum product imports, which fall from $4.31 billion to $2.79 billion. Non-oil imports also decline, strengthening the trade balance.
Remittances Boost Secondary Income Surplus
Another key factor supporting the current account surplus is a strong secondary income surplus, fueled by remittances from Nigerians living abroad. Diaspora remittances rise to $5.78 billion in Q2, up from $5.14 billion in Q1 2024. These consistent inflows play an essential role in providing liquidity to the economy, helping to stabilize the naira.
Service Account and Primary Income Deficits
Despite the positive overall current account balance, Nigeria’s service account deficit increases to $3.47 billion in Q2, up from $3.26 billion in the previous quarter. This rise is driven by higher outflows for business services, which nearly double to $1.41 billion, and a 4.76% increase in travel payments to $1.10 billion, reflecting more foreign spending on services.
The primary income deficit also increases slightly by 2.07%, reaching $2.47 billion in Q2, up from $2.42 billion in Q1. This rise is mainly due to higher reinvested earnings by non-resident investors, indicating sustained foreign interest in Nigeria’s economic opportunities despite broader challenges.
However, these deficits do not undermine overall forex stability, as the naira continues to hold within the N1,450-N1,500 range, suggesting that improvements in the external balance are sufficient to offset the service account deficit.
Financial Account Shows Surge in Portfolio Inflows
In the financial account, Nigeria experiences a notable rise in portfolio investment inflows, with liabilities increasing to $2.27 billion in Q2 2024, reversing the $5.03 billion net reduction seen in Q1. This shift is driven by a surge in short-term debt securities, with portfolio investment liabilities reaching $4.42 billion, up from $1.40 billion in Q1.
While these inflows contribute positively to forex reserves and support the naira, they highlight a reliance on portfolio investments rather than more stable foreign direct investments, which could pose risks to future forex stability.
Outlook for Forex Stability
Nigeria’s improved current account position in Q2 2024 sets a solid foundation for forex stability in the near term. Reduced import costs, steady remittance inflows, and lessened dependency on imports have all contributed to maintaining the naira’s stability. However, rising demand for foreign exchange in Q3, particularly from businesses meeting year-end obligations, leads to a sharp depreciation of the naira, which continues to weaken into early November.
The increase in dollar demand, coupled with speculative activities driven by expectations of government reforms, exacerbates forex pressures. As oil revenue fluctuations and short-term investment inflows remain sensitive to global market conditions, Nigeria’s forex stability will likely face continued challenges in the coming months.
Without sustained dollar inflows from diverse sources, including direct foreign investment and steady remittances, the naira may continue to experience depreciation pressures, especially if external shocks or policy changes disrupt the forex supply chain.
