Today, we now turn our attention to the financial accounts, in continuation of our note on the balance of payments from yesterday, which revealed that the current account had a net surplus of USD 5.1bn in Q2 ’22. Our chart below, shows that the financial account improved to a net surplus of USD3.1bn in Q2 ’22 equivalent to 2.8% of GDP, from a revised deficit of -USD880m in Q1 ’22 (-0.8% of GDP). The improvement in the financial accounts is due to a USD1.3bn q/q increase in the net inflow from financial liabilities to USD4.1bn, and a -USD2.7bn decrease in the net outflow from financial assets to USD980m.
The surplus in financial liabilities was driven by a USD1.0bn inflow from the CBN’s currency swaps compared with zero for Q1 ’22, and other investment liabilities (mostly currency deposits and loans) of almost USD3.0bn vs. USD1.6bn in Q1 ’22.
A higher inflow of USD1.7bn from foreign portfolio investors compared with USD1.5bn in the preceding quarter also contributed to the net surplus in financial liabilities.
In terms of split, investment in debt securities dominated total portfolio inflows at USD1.5bn vs. USD1.3bn in the previous quarter.
Equity investments inflow accounted for just USD195m in Q2, down from USD260m in Q1 ’22. This highlights the dwindling share of offshore investor participation in Nigeria’s equity markets.
According to the NGX report on domestic and international portfolio participation, the share of offshore involvement in domestic equities decreased to 16.3% between January and September of this year, compared with 24.0% for the comparable period in 2021.
The data also shows that direct investments registered a negative figure of -USD1.6bn vs. -USD323m in Q1, or in other words a larger investment outflow relative to Q1.
The smaller net outflow of -USD980m (vs.-USD3.7bn) recorded on the financial assets was mostly because of a credit of USD293m compared with debits of -USD4.7bn in Q1 ’22. Going forward, we believe that the financial account is likely to shift to a net debit position over the next few quarters largely because of the likelihood of reduced capital inflows from portfolio investors driven by ongoing hawkishness by major central banks.
