The state of Nigeria’s merchandise trade position with the rest of the world alongside its declining crude oil export earnings is becoming increasingly worrisome amid fears that the nation’s total public debt stock could rise by another N37.78 billion by end of 2021.
This is coming after the National Bureau of Statistics (NBS) report on Foreign Trade Statistics for Q1 2021 revealed that the country recorded a goods trade deficit of N3.9 trillion in Q1 2021 (2.6 per cent of GDP), the highest in more than twelve successive quarters.
This was jointly driven by a 9.0 per cent quarter-on-quarter (q/q) (or 29.3 per cent year-on-year ( y/y) decline in export value to N2.9 trillion and a 15.6 per cent (q/q) (or 54.3 per cent y/y) increase in import value to N6.9 trillion.
According to economic analysts, this development is a major surprise, given its sharp departure from their model’s output which fed on the Q1 2021 GDP data (by NBS) and crude oil price movement.
“Specifically, the Q1 2021 GDP data revealed that Nigeria’s daily crude oil production averaged 1.7mbpd in Q1:2021, compared to 1.6mbpd in Q4 2020 and 2.1mbpd in Q1 2020. Oil price in Q1 2021 averaged $61.32/bbl compared to $45.25/bbl and $50.81/bbl in Q4 and Q1 2020 respectively.
Using the CBN official rate of N306/$1 for Q1 2020 and N379/$1 for Q4 2020 and Q1 2021, our model suggests that crude oil earnings in Q1 2021 should surpass both Q1 and Q4 2020 levels by a minimum of 5.0 per cent given the spread of over $10 on every barrel sold in Q1:2021. Interestingly, there was no communication from the NNPC in Q1 2021 to suggest that Nigeria’s crude oil got stranded or rejected by its major buyers”, analysts at Afrinvest stated.
The report further stated that the value of non-crude oil export rose by 45.2 per cent q/q to N977.4 billion (from N673.2 billion in Q4 2020) but 16.1 per cent below the N1.2 trillion reported in Q1 2020.
Afrinvest said the y/y shortfall in non-oil export was a result of the slow recovery of major non-oil activity sectors, adding that they expect the trade deficit to remain elevated in Q2 2021”. “Given the CBN’s recent adoption of a new official exchange rate (N410/$1) which makes Nigeria’s export value cheaper and import value more expensive, we expect the trade deficit to remain elevated in Q2 2021”, they said.
Meanwhile, recent data published by the Debt Management Office (DMO) revealed that Nigeria’s public debt stock increased by 0.6 per cent q/q to N33.11 trillion in Q1 2021 (Q4 2020: N32.92 trillion).
This figure according to analysts at Cordros Capital was due to 2.1 per cent q/q increase in domestic debt to N20.64 trillion (Q4 2020: N20.21 trillion), reflecting an increased bond issuance and promissory notes issued to settle the inherited arrears of the FGN to State Governments and exporters during the review period.
“Barring the securitisation of the outstanding CBN’s Ways and Means, we expect the total public debt stock to hit NGN37.78 trillion in 2021 FY in line with the additional borrowing by the States and FGN to fund their 2021 fiscal operations – estimated at N4.86 trillion”, Cordros capital said.