The International Monetary Fund (IMF) has stated that improving trade balanceis having a limited impact on Foreign Exchange (FX) strains with the exchange rate premiums in the parallel market staying in the 35-40% range since October 2021.
This was disclosed in the IMF Staff concludes staff meetings with the Nigerian authorities from June 6-10, 2022, to discuss recent economic and financial developments, and the economic outlook for the country.
Yesterday The exchange rate between the naira and the US dollar closed at N420/$1 at the Investors and Exporters (I&E) window. However, the black market maintains a wide premium to closed at N607/$1, according to information from BDC operators.
The IMF stated that also real GDP growth is broadening to all sectors except oil, but inflation remains elevated.The international lenders added that the economic outlook is challenging with high food prices raising food security concerns.
What the IMF is saying
“Regarding the external sector, the current account deficit narrowed significantly in 2021 helped by import compression and higher net oil balance. However, the improving trade balance, which has continued so far in 2022, is having a limited impact on Foreign Exchange (FX) strains with the exchange rate premiums in the parallel market staying in the 35-40 percent range since October 2021. Despite supportive oil prices, gross FX reserves fell to $38.6 billion at end-May 2022, having reached $41.5 billion in September 2021 boosted by SDR allocation and Eurobond issuance.” IMF said
The International lenders also remarked on Nigeria’s inflationary pressures and the Central Bank of Nigeria’s response. IMF said, “Inflation has reached 17.7 percent (y/y) in May led by a renewed surge in food prices, exacerbated by the war in Ukraine, and raising food security concerns as over 40 percent of the population live below the poverty line. To contain inflationary pressures, the Central Bank of Nigeria has recently hiked its monetary policy rate by 150 basis points to 13 percent.
IMF stated that the economic recovery continues to gain strength on the back of services and agriculture with GDP growth reaching 3.6 percent (y/y) in Q1 2022.
What you should know
Nigeria’s foreign trade rose to N13 trillion in the first quarter of 2022, increasing by 11.1% from N11.7 trillion recorded in the previous quarter and 65.4% higher than the N7.86 trillion recorded in Q1 2021.This is according in the recently released foreign trade report for Q1 2022, by the National Bureau of Statistics (NBS).
Total imports in Q1 2022 totaled N5.9 trillion, down 0.67% from Q4 2021 (N5.94 trillion), but up 21.04% from the comparable period in 2021. (N4.88 trillion).
Nigeria’s export income in the first quarter of 2022 was N7.1 trillion, up 23.1% and 137.9% from N5.77 trillion and N2.98 trillion in the first and fourth quarters of 2021, respectively.
Despite the fact that Nigeria’s crude oil production has been declining, the considerable increase in crude oil prices has allowed it to increase its crude export revenues. Crude oil revenues, for example, increased by 175% year on year to N5.62 trillion from N2.04 trillion in Q1 2021.
Crude oil export revenues made up 79.16 percent of overall export earnings in the quarter under consideration. As a result, Nigeria’s trade balance improved in Q1 2022, with a N1.12 trillion foreign trade surplus. Nigeria’s trade surplus is at its greatest level since the third quarter of 2019.