Nigeria’s cash flow builds to tackle FX backlog
Key questions this article answers:
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Nigeria’s current account balance rebounded to a surplus in 2022 following three consecutive years of a deficit. What does this mean for the Nigerian economy?
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What makes up a country’s current account? What is the outlook for Nigeria’s current account in 2023?
Given the slew of real macroeconomic challenges Nigerians face daily, from rising inflation to high unemployment, it's easy for good news on seemingly-abstract macroeconomic indicators to slip through the media unnoticed and unappreciated.
One such news is the rebound in Nigeria’s financial flow, where the country earned more money from abroad in 2022 than it spent abroad, reversing a three-year trend. In other words, Nigeria’s current account (CA) turned a surplus of $1.0 billion (0.2% of GDP) in 2022 from a deficit of $3.3 billion (-0.7% of GDP) in 2021.
While 2022’s balance remains meagre compared to 2017 ($13.6 billion surplus; 3.6% of GDP), a win is a win, as Nigeria emerged from years of deficit contributing to severe dollar illiquidity under the Buhari administration.
Given how CA reveals the status of the country’s total earnings and spending from abroad (expressed in dollars or as a percentage of GDP), it is a major economic variable that impacts the exchange rate and provides a good idea of economic activity.
As such, CA is extensively considered by investors and the global market when making investment decisions. It is also the point at which economics meets political reality head-on, as its balance (surplus or deficit) spotlights what a country’s government is doing right or wrong, a key performance indicator (KPI) of sorts.
That said, we (Stears) expect Nigeria’s CA balance to continue to improve
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