Today, we take a look at the financial account, the second component of the balance of payments (BOP). The account recorded a net deficit of -USD785m in Q1 ‘22 equivalent to -0.7% of Q1 22 GDP. This is a significant quarter-on-quarter decrease from the net deficit of -USD5.1bn in Q4 '21. According to the data, the financial account's improved position was driven by a positive change in financial liabilities, which recorded a net surplus (inflow) of USD3.3bn from a net deficit of (outflow) of -USD2.8bn in Q4 ’21. 

Under financial liabilities, foreign portfolio investment (FPI) inflow into the economy improved to USD1.5bn during the quarter. This compares with a net outflow of -USD3.0bn in Q4 ’21. 

Investments in debt securities (mainly government debt securities) accounted for almost USD1.3bn, or about 83%, of the total FPI inflow. 

Investments in equity securities totalled just c.USD260m. Offshore investors have largely stayed away from Nigeria due to the country's fx liquidity concerns. A recent World Bank report estimates the backlog of delayed external payments at c.USD1.7bn. 

The second major factor contributing to the favourable position of financial liabilities was a net inflow of USD1.97bn in other investment liabilities. These comprised roughly USD899m in bank currency deposits and roughly USD1.1bn in net loans, primarily by the FGN. 

In contrast, financial assets recorded a net deficit (outflow) of USD4.1bn, due largely to currency deposits made in banks outside the country, primarily by non-bank corporations and households. 

Going forward, it is increasingly likely that we see further deterioration of the financial account due to the hawkish stance of most central banks across the world, led by the US where the Federal Reserve is implementing rate hikes as well as quantitative tightening. 

This development will continue to cause capital flow reversals for emerging and frontier markets and restricted access to credit on the international capital market, as is already being observed this year.