Lagos – The deepening of Nigeria’s net negative liabilities position is only likely to continue over the coming years as structurally lower oil prices see the country’s trade balance to move into persistent deficits from 2021, BMI View Report on Economic Analysis of Nigeria’s Limited Risk from External and Balance of Payments has said.
It, however, said while exposure to foreign liabilities leaves the economy vulnerable to a sudden deterioration in investor sentiment , adding that at just -12.7% of GDP in 2015 , when NIIP data was last made available, the size of Nigeria’s deficit in its NIIP is small compared to elsewhere in the region.
It maintained that Nigeria’s net international investment position will remain in negative territory as the country’s current account returns to deficit from 2021. The threat of capital flight, it added, is limited by the large role foreign direct investment plays in Nigeria’s liabilities position.
It said although a recovery in the price of crude oil – comprising around 90.0% of Nigeria’s total export revenues – will keep the country’s current account in surplus in the next two-to-three years, we believe goods trade dynamics will begin deteriorating notably around 2021 due to steady import growth and maturing oil fields.
According to BMI report, “As it stands, we are yet to see that kind of economic reform and improvements to Nigeria’s operation environment that could yield the uptick in investment needed to diversify export revenues. This will see the current account reach a deficit of 3.8% of GDP by 2027 according to our forecasts.”
It added that years of foreign investment and government borrowing from abroad have left Nigeria’s NIIP in negative territory despite having run years of current account surpluses.
Besides its relatively small NIIP, the report said Nigeria’s external position benefits from a low external debt burden, which reached just 9.1% of GDP in 2017 compared to a regional average of 45.1%.
“Foreign obligations fell dramatically in the early 2000s as growth accelerated and the country’s creditors wrote off large portions of its debt. While we believe Nigeria’s total external debt stock will steadily rise over our long-term outlook period to 2027, it will likely remain in sustainable territory thanks to a low base, rising oil prices, and a cyclical upswing in real GDP growth, with external debt average 7.4% of GDP across the next decade,” the report stated.
It added that the cost of servicing external debt is likely to rise over in coming years. A decade of unprecedentedly loose monetary policy in developed markets has dragged down yields across emerging markets as investors have moved their into EM markets, where they can usually get a higher return.
The post Low Oil Price, External Debts, Others Will Lower Nigeria’s Balance Of Trade From 2021 –Report appeared first on Independent Nigeria.
Low Oil Price, External Debts, Others Will Lower Nigeria’s Balance Of Trade From 2021 –Report
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