Nigeria achieved a current account surplus of $5.14 billion (11.46% of GDP) in Q2 2024, showing significant improvement over the $3.38 billion surplus (7.35% of GDP) from the previous quarter. This boost reflects reduced import bills and steady remittance inflows, which have helped stabilize the naira, keeping it within the N1,450-N1,500 range.
Trade Surplus Drives Current Account Gains
The current account surplus was primarily driven by a strong trade surplus, which saw merchandise imports fall sharply by 20.59% to $8.64 billion in Q2 from $10.88 billion in Q1. This decline in import spending was largely due to reduced petroleum product imports, which dropped from $4.31 billion to $2.79 billion. Despite a slight decrease in Nigeria’s crude oil production from 1.33 million barrels per day (mbpd) in Q1 to 1.27 mbpd in Q2, the average price of Bonny Light crude rose to $86.97 per barrel, up from $85.58, providing some support against the revenue shortfall.
Remittances Boost Secondary Income Surplus
Another key contributor to the current account surplus was a strong secondary income surplus, driven by remittances from Nigerians abroad. Inflows reached $5.78 billion in Q2, up from $5.14 billion in Q1, highlighting the crucial role of diaspora remittances in stabilizing the naira.
Service Account and Primary Income Deficits Grow
However, Nigeria’s service account deficit grew to $3.47 billion from $3.26 billion in Q1, primarily due to higher payments for business and travel services. The primary income deficit also rose by 2.07%, from $2.42 billion to $2.47 billion, due to increased reinvested earnings by foreign investors. Despite these deficits, the naira remained stable, and the positive current account balance helped maintain investor confidence.
In the financial account, Nigeria saw a significant increase in portfolio investment liabilities, rising from $1.40 billion in Q1 to $4.42 billion in Q2. This was driven by strong inflows into short-term debt securities as investors sought higher yields in Nigeria. While these inflows contributed to forex reserves, the reliance on portfolio investments rather than direct foreign investment could pose future risks.
Challenges Ahead for Naira Stability
Despite the positive current account balance in Q2, Nigeria’s forex stability faces challenges. In Q3, rising demand for dollars led to a sharp depreciation of the naira, which continued to weaken into early November. The surge in dollar demand, particularly from businesses meeting year-end obligations and speculative activities, strained the currency.
As oil revenues fluctuate and short-term investment inflows remain sensitive to global market conditions, Nigeria’s forex stability could be tested in the months ahead. The country will need a diverse inflow of dollars to mitigate depreciation pressures and maintain currency stability.
