In the first half of 2022, Nigeria’s current account balance increased to a nine-year high of $7.7 billion, five times the $1.13 billion recorded in the second half of last year.
Additionally, it is substantially greater than the negative balance of $2.98 billion registered in the same time of 2021.
Statistics gathered from the Nigerian Central Bank indicate this. The Nigerian current account, sometimes referred to as the balance of payments, is a report that lists all the financial transactions that took place between Nigerians and others across the world at any particular time.
A country’s balance of payment (BOP) statement shows whether it has a surplus or a deficit of finances; for example, a country’s BOP is considered to be in surplus when its exports exceed its imports. However, the BOP imbalance shows that the country’s imports exceed its exports.
Between the second half of 2018 and the first half of 2021, Nigeria experienced a current account deficit, which was primarily caused by a reduction in export revenue, an increase in imports, and a decline in remittances from the diaspora. However, the balance has remained in surplus since the second half of 2021, and it reached a 9-year high during the reviewed period.
For Nigeria’s foreign exchange issue, a positive current account balance is extremely encouraging and could signal a turning point in the effort to fix the exchange rate.
Nigeria exported crude oil worth $27.8 billion in the first half of 2022, an increase of 85.1% from the $14.99 billion exported in the same time and a 37.7% rise over the $20.16 billion exported in the second half of 2021.
Similarly, gas export revenue climbed by 40.7% year over year during the study period to reach $3.81 billion.
Net imports, meanwhile, slightly decreased by 0.8% to $26.3 billion between January and June 2022 from $26.51 billion in H2 2021. Nevertheless, it climbed by 11.5% when compared to the similar period in 2021.
Nigeria’s revenue from the export of power increased by 70.4% year over year to $3963 billion from $2.31 billion in H1 2021.
The positive position of Nigeria’s international trade balance during the period due to the increase in crude oil export earnings, which was largely fueled by the rally in the crude oil market reported earlier in the year, can be credited for the country’s current account balance’s significant improvement.
Recall that after Russia’s invasion of Ukraine in February, crude oil prices increased to a record high in the first and second quarters of 2022.
Russia is a major producer and exporter of oil on the world market, and it is still dealing with sanctions from other western economies that have decreased the supply of oil on the market and led to a bullish market attitude.
Nigeria benefited from the oil rally as well, despite a drop in production, as the earnings from crude oil improved its trade balance and, consequently, its current account. The recent decline in the exchange rate and scarcity of foreign currency have been two big problems for the Nigerian economy.
Due to growing demand for dollars and a lack of supply, the naira has declined dramatically at the parallel market year to far, causing a market differential of over N300 between the official and black markets.
The top bank could start to find liquidity to continue to defend the local currency against volatility with the improvement in Nigeria’s current account balance brought on by higher oil earnings and an increase in remittance inflows.
