Lower current-account surplus due to MCP
The balance of payments for Q2 2017 shows that the current-account surplus narrowed from the equivalent of 3.2% of GDP to 1.6%. The explanation lies in a decline in the trade surplus from 2.7% to 2.4% of GDP, along with a larger widening of the services outflow from 2.4% to 3.8%. Fx availability has been enhanced by the CBN’s multiple currency practices (MCP). Importers have benefited, which is evident from manufacturing PMIs, and retail has also been able to meet its requirements. In a forthcoming daily note we will examine trends on the capital account.
- The share of oil and gas exports in GDP crashed from 25.0% in Q1 2012 to just 9.6% in Q4 2016. A modest recovery to 10.9% in both Q1 and Q2 is attributable to a pick-up in oil production and the contraction in GDP.
- Merchandise imports increased by US$1.0bn q/q in Q2: if we strip out oil and gas, the increase rises to US$1.3bn. This underpins our point about fx availability and masks any benefits from the FGN’s import substitution policies.
- The same is self-evident when we drill down into the outflow on services in Q2 2017. The debits on travel and other business services rose by US$900m and US$400m q/q respectively. Fx ix available at the CBN’s various windows if the user is comfortable with the price.
- Net current transfers, which are overwhelmingly workers’ remittances, have held up better than expected, at more than 5% of GDP for four successive quarters.
· We are comfortable with the smaller surplus on the current-account because offshore investors have returned to local equity and debt markets, and because the FGN is to revisit the Eurobond market this quarter.