COMMENTARY: Trade Deficit Widens to $9.61bn in Q1 2021; Naira Falls

Trade Deficit Widens to $9.61bn in Q1 2021; Naira Falls

• By FDC Limited Analysts

Nigeria has traditionally exported more than it imports i.e. it usually enjoys a balance of trade surplus. This was principally because of high oil prices and revenue.

In recent times with oil price crashing, Nigeria had started running a balance of trade deficit (imports greater than exports). Trade deficit increased by 1,094.2% to $9.61bn in Q1’21 from $804.71mn in Q1’20.

The recent spike in oil prices has raised hopes for a return to the trade surplus era. This is why the surprise swing of Q1 merchandize trade to a deficit of $9.61bn caught the market napping.

Analysts are still optimistic and project that the balance of trade will swing into surplus of $3.6bn in 2022. The Q1 deficit of $9.61bn will be more than compensated by the higher oil price currently at $72pb.

Not surprisingly, the Naira has weakened in the forex markets to N502/$ (parallel) but is expected to recover in Q3 towards its fair value of N470-480/$. This is because of currency adjustment and an expected decline in demand for imported goods. Nigeria’s import bill is currently $63.8bn.

Trade deficits are usually funded by a combination of export earnings, external reserves and foreign loans. This could further increase the country’s external debt stock to $45bn.