SAT, OCT 10 2020-theG&BJournal-Nigeria’s Current Account (CA) recorded its eighth consecutive quarterly deficit in Q2-20 at USD3.23 billion. The deficit was largely underpinned by a 36.4% q/q decline in current transfers (USD3.91 billion) and a much larger trade deficit (+181.4% q/q to USD3.74 billion) which offset the decline in services (-67.6% q/q) and income payments (-66.9% q/q).
Current transfers, which historically have helped cushion the deterioration in the country’s CA, was the lowest since at least 2008 as the COVID-19 pandemic led to a reduction in wages and employment of Nigerians abroad, thus, limiting their ability to remit money home.
Analysts at Cordros said they expect further deterioration in the CA, hinged on the trade balance remaining in deficit and slow recovery in remittances.
The COVID-19 containment measures had its attendant effect on Government finances following the decline in economic activities in Q2-20. According to the National Bureau of Statistics (NBS), States Internally Generated Revenue (IGR) declined by 26.5% q/q to NGN259.7 billion in Q2-20, following a decline in all the IGR components save for Other Taxes (+3.8% q/q).
MDAs revenue (-42.0% q/q) declined the most followed by Direct Assessment taxes (-41.8% q/q), Road taxes (-38.0% q/q) and PAYE (-27.0% q/q). The decline was expected as the lockdown led to reduced staff salaries and diminished corporate profits. As such, the ability of states to generate revenue during the period was limited.
On a y/y basis, IGR declined by 11.7% y/y to NGN612.87 billion in H1-20. The ability to generate more taxes is limited given the gloomy growth and employment outlook. Therefore, we expect FY-20 IGR to print below the FY-19 level (NGN1.33 trillion), resulting in state governments relying more on Federal allocations.