Nigeria’s Declining Trade Balance Will Lead To Heavier Debt Burden | Independent Newspapers Limited
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Nigeria’s Declining Trade Balance Will Lead To Heavier Debt Burden

Posted: Mar 25, 2016 at 3:00 am   /   by   /   comments (0)

Kirk Leigh


Nigeria’s trade balance fell to a twelve-year low in 2015, raising concern that the nation’s debt burden already at N12.6 trillion as at December 2015, could rise further and consequently stifle government’s expenditure drive.

Nigeria’s exports slumped 40.3 percent last year after a fall in crude prices slashed government revenues, weakened the currency and caused the economy to grow at its slowest pace in decades, the National Bureau of Statistics (NBS) said, this is as official statistics released by the DMO showed that the country’s total debt rose from N11.24 trillion as at December 31, 2014 to N12.6 trillion as at December 31, 2015.

“The main implication is borrowing to fund the budget. The government is borrowing heavily, both by issuing bonds domestically, and also by seeking to borrow from international financial institutions. So, as we expect, government debt is already rising. For instance, the Federal Government has borrowed over a trillion naira in the last quarter alone. The budget that is passed… has a significant debt component,” says Dr. Ogho Okiti, CEO of Time Economics, an Abuja based consulting firm.

According to Okiti, “The dramatic reduction in Nigeria’s balance of trade is the clearest reflection of the fall in oil prices during the period. Oil prices fell by over 70% between June 2014 and December 2015 – a severe 18-month price collapse. Oil exports account for over 90% of export earnings and following the fall in the price, it has reflected very badly on the balance of trade.”

“This development arose largely due to sharp decline of the value of exports. The structure of Nigeria’s exports is dominated by crude,” the NBS agrees with Okiti.

Okiti called on government to temper reliance on oil while hoping that oil prices improve in the international market in the near term.

“In the short term, we can only hope that oil price improves. We have seen a recovery in the last three weeks and it has now reached $40 per barrel from a very low of $27. What is not clear is whether this recovery will be sustained. In the long term, two things are important: first, for the government to stop relying on oil revenues for funding the budget, second, to facilitate the diversification of Nigeria’s exports”.

The balance of trade for 2015, which is the precursor of the balance of payment, ebbed at N3.03 trillion, down from N8.93 trillion a year earlier. The reduction in the trade balance, NBS says is due to sharp decline in the cost of exports, a situation a Reuters’ report describes as “the worst economic crisis in years” for Nigeria.

Exports fell by 29.7 percent in the fourth quarter from a year ago and imports declined 22.4 percent, the NBS said. The fall in crude oil exports, which accounted for 71.4 percent of total domestic exports last year, hit the economy the most. Nigeria’s economy slowed in 2015 to grow at 2.8 percent, its slowest growth in decades, down from 6.2 percent in 2014, as currency controls introduced by the central bank last year to support the naira, as oil prices plunged start to hurt growth. The dollar restrictions caused inflation to spike in February, rising to almost a three-and-half-year high while forcing lenders to delay hard currency loan and trade repayments to foreign bank. The IMF has called on Nigeria to lift the curbs and let the naira reflect “market forces” more closely, as the restrictions had significantly affected the private sector.

The naira trades on the unofficial market some 40 percent below the official rate to the dollar. President Muhammadu Buhari has rejected calls to devalue the naira, backing the central bank, arguing that dollar curbs were necessary as Africa’s top oil producer could no longer afford to import as much as it had in the past due. Nigeria exported mainly to Asia and Europe last year while imports were dominated by machinery, petrol and foods products from Asia, Europe and Americas. Imports within Africa grew by 6.3 percent.