Nigeria: Balance of payments problems escalating

The strains in Nigeria's balance of payments are growing, threatening to push Sub-Saharan Africa's largest economy into a full-blown crisis. The Nigerian economy has been battered by the falling price of oil, which has slashed government revenue and caused a widening current account deficit. But the authorities have refused to allow the naira to weaken, instead resorting to an increasingly complex system of FX controls to hold the value of the currency stable. This system is coming under more and more pressure as demand for dollars far outstrips supply. The Central Bank of Nigeria's attempt to further limit the flow of US dollars to private money lenders caused the naira to tumble by 28% against the dollar in February. This has imposed a de facto devaluation on consumers without the connections to access the official market and opened up a huge arbitrage opportunity for those that do. Nor has this unsustainable attempt to support the naira cushioned the real economy from the negative shock of falling oil prices. The expansion of private sector credit has eased and the non-oil economy is growing at its slowest rate in five years. The key question now is how long it will take for Nigerian policy-makers to abandon a set of policies that are clearly making this worse.