As crude oil prices at the international market continue to surge on gradual reopening of economies globally and increasing compliance by oil exporting countries’ on output cuts, an analyst at Fitch Ratings, Mahmoud Harb, has projected a positive outlook for Nigeria’s current account balance sheet in 2020 fiscal year.
A country is rated to have current account deficit when its foreign liabilities exceed its foreign assets. According to the Central bank of Nigeria (CBN), Nigeria’s current account deficit widened in Q4, 2019 from -2.2% of GDP the previous quarter to -5.4%, representing the worst ratio over a decade. The deterioration was attributed to a huge trade deficit, the first since Q3 2016 and largest ever net outflow on services in US dollar terms.
As at the end of Q3, 2019, the apex bank reported that Nigeria’s cumulative current account deficit stood at $9.1 billion. r Harb, a director in the global ratings firm, was quoted by Bloomberg as saying that if the crude oil prices maintain at least 10 percent rise above its current level over the next seven months, prospects are high that it will help Nigeria’s current account payments, reducing its deficit by 1.5 percent of gross domestic product.
He projected: “If oil prices stabilise close to the current levels until the end of the year, it would add modest upside risks to forecasts for economic growth, public finances and international reserves. A 10% rise in the full year’s average crude price above the company’s current forecast of $35 per barrel would improve Nigeria’s current account deficit by 1.5% of gross domestic product”, the analyst added.
Over the past week, crude oil prices have rebounded to the highest level since February with Brent crude oil prices ranging from $38 per barrel and $42 per barrel for future sales. The positive development for Nigeria and other oil producing and exporting countries was largely due to output cut by OPEC+ and other countries which helped to mitigate the supply glut in the market.