Nigeria spending raises instability fears
By Tom Burgis in Lagos

Published: December 16 2010 17:42 | Last updated: December 16 2010 17:42

Heavy election-season spending in Nigeria risks exposing sub-Saharan Africa’s biggest oil producer to economic instability and potentially a currency shock, senior officials and bankers have warned, as fears mount over the rapid depletion of foreign reserves.

Successive governments have all but emptied Nigeria’s oil savings account, dragging down hard currency reserves and leaving the central bank ever less room to manoeuvre as it seeks to keep the naira at 150 to the dollar
.

“I am extremely concerned,” one senior official, who asked not to be named, told the Financial Times. “Fiscal management is very poor. Next year will be very, very difficult.”

Goodluck Jonathan, president, on Wednesday presented to legislators a $28bn budget for next year – an 18 per cent cutback on spending this year – which he said “heralds a period of fiscal consolidation and prudence”.

However, Nigerian budgets tend to undergo revisions and delay and checks on spending are weak



Mr Jonathan faces a fight at ruling party primaries set for January against Atiku Abubakar, a former vice-president who has sought to make the dwindling reserves a campaign battleground.

Many state governors and legislators also face re-election in polls due by April.

The bulk of the budget’s spending cuts come from investment, leaving recurrent expenditure – a key plank of a political system based on patronage – to rise as a share of overall outlay.

“Between now and the second quarter, the fiscal laxity is in high gear,” said a former top economic official.

“That will put a lot of pressure on the exchange rate.” He added, however, that whoever won the election would be in a far stronger position to restrain spending.

Samir Gadio, emerging markets strategist at Standard Bank, noted that falling demand for dollar sales since a September spike as the central bank tightened monetary policy suggested that the risk of a sudden naira depreciation had declined significantly.

“To let the currency go would have a significant impact on inflation, investment and other control macroeconomic variables,” Mr Gadio said.

Yet even optimists agree that the fall in total reserves – which includes an oil savings account – from a September 2008 peak of $62bn to $33bn at the end of last month leaves the naira vulnerable to a fall in the price of oil, which accounts for 95 per cent of hard currency earnings and 80 per cent of government income.

One foreign financier echoed others by warning that, were the total reserves to fall closer to $20bn, a collapse in confidence in the naira could “spiral out of control”.

Since 2007 politicians have whittled away at the controls on the so-called oil savings or excess crude account, designed to shield the economy against cycles of boom and bust by setting aside petroleum revenues above a given oil price.

In the three years since the account peaked at $20bn, billions more should have accrued. Yet in August it contained $400m.

Fitch, the credit rating agency, changed its outlook on Nigeria’s rating from stable to negative in October and warned that “further reserve loss will exert downward pressure on the rating”.

The government is working on a sovereign wealth fund designed to restore some order to hard currency management.

But, in a country where government money is often diverted into private pockets, there are fears that campaign largesse will trump fiscal prudence.

Bismarck Rewane, chief executive of Financial Derivatives, a Lagos-based consultancy, warned: “There has to be strong leadership and less leakage: if not, there’s a high risk of devaluation.”

The central bank has been forced to draw down the reserves further to soak up naira pumped into the economy by government.

Seeking to counter inflation and protect the currency, it has also begun to increase interest rates.

However, higher rates risk choking off the campaign to foster lending to non-oil businesses launched by Lamido Sanusi, the reformist governor.

“If the government continues to monetise oil revenues at a high rate, the central bank will be faced with three very difficult choices,” said Scott Rogers, International Monetary Fund mission chief in Nigeria, before the budget speech.

“Continue to lose reserves, continue to raise interest rates to reduce demand for foreign ex-change, or let the currency depreciate.”

http://www.ft.com/cms/s/b99cea72-0939-11e0-ada6-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fb99cea72-0939-11e0-ada6-00144feabdc0.html&_i_referer=#axzz18OQr70vz

NAIRA is under serious threat.
TO ALL PDP SUPPORTERS I have simple question whats has the government achieved for foreign reserves to come down from $62 billion to $33 billion dollors in 2 years 

EKONGKING:

NAIRA is under serious threat.
TO ALL PDP SUPPORTERS I have simple question whats has the government achieved for foreign reserves to come down from $62 billion to $33 billion dollors in 2 years 

More houses abroad, and excess money for elections my friend!

We should be honest with ourselves, the set of Govt Officials we have currently are clueless, even officials during Obasanjo's time where more productive!

EKONGKING:

NAIRA is under serious threat.
TO ALL PDP SUPPORTERS I have simple question whats has the government achieved for foreign reserves to come down from $62 billion to $33 billion dollors in 2 years 

Good question! Pls,let's vote out pdp.PLEASE!

Seems like we may be going the route of Zimbabwe with our currency becoming worthless. We will soon be trading in U.S. dollars instead of the Naira.

PDP is going out. .

Jonathan Knows it!
Dora Akunyili knows it!
All the lawmakers that have deflected know it!
PDP sef knows it!

Vote Wisely, Vote Ribadu 2011

ladi02:

PDP is going out. .

Jonathan Knows it!
Dora Akunyili knows it!
All the lawmakers that have deflected know it!
PDP sef knows it!

Vote Wisely, Vote Ribadu 2011

Vote GEJ; but as for governorship, vote according to the most prominent regional political party.

@chyz,

Why do you want us to vote for GEJ?

sochan:

@chyz,

Why do you want us to vote for GEJ?

Becos he's as clueless as the GEJ he's rooting for.!

Rofl.

I will always blame soludo and his predecessor in terms of our economy, the served as the gov'nors of the CBN, b4 now why didn't they advice govt as economists? and above all that is one of the major functions of the CBN

The presidents: obj is a Farmer, yar'adua, a Lecurer tho i dont knw were he majored, jonathan, a Lecturer/zoologist. For goodness sake they are there to spend to the last dim except advised. I will always blame soludo and his predecessor in terms of our economy, they served as the gov'nors of the CBN, b4 now why didn't they advice govt as economists? and above all that is one of the major functions of the CBN.

I pray that when it spirals out of control, it will crash into my bedroom.

Look this is precisely the reason I will nt b supporting Jonathan- firstly he wants the presidency without earning- wat has he done?

Has he nt got opportunity to give the nation a glimse of wat to come?

No plans for improved well planned transportation system- rather wat he is building is a tribalist, egocentric Niger-delta road; hoping to connect all the Niger-delta town. This wud simply turn to Tinapa or far northern roads that re dualized wen only at an exaggerated estimate only about 1000 cars ply there in a year compare to Benin- ore of over 250 million per-annum, yet it is in shambles!!

No plans for improvement of education - wat he did was give contract for 6 university of which one was located in his village in Bayelsa- Bayelsa currently has a new modern university that is so under-capacitated and under patronised - there re only 14 student in their civil engineering department compare to 240 in FUTO, yet imo state with highest number of jamb takers- last year 125000 compare to 3600 for Bayelsa, despite free jamb forms and full tuition for bayelsans),  enthusiast and eager prospective students has got NO " FULL" Federal University, nt technology one.  Which parent wud encourage his daughter to travel 4 hours on a tulmutous  flying boat to her destination, all becos of Uni when there re others around?

Foreign reserved has been depleted to 1.46 billion dollars, and the 1 billion out of it is kept aside for soviegnty fund,  don't mind the fools tell u it's still at 32 billion. If we had 32 billion why wud they b thinking of borrowing a piffle 3.4 billion dollars at high interest rate from some private investors ?? Check out www.ft.com under world and Africa.

I like GEJ, but he is toooo dull, so daft. Why cant he even pull people that has work n brought changes, tremendous changes at a point in our history back? People like Ngozi okonje iwealla, soludo- he is there atiku is tapping him off his very olodo eyes, Ribadu- he forgave he, why nt reinstate him so he cud carry on with his legacy, or even mk him the IG of police ?? How abt madam due-process ?

We don't need a quite man at this moment!! A time When NASS are allocating 25% of the budget to themselves, EFCC is gone comatose, our oil reserve is dwindling, abeg we need a strong man. A man who can fight, challenge these modaforkers!

This is serious, I weep for my country.

@ macjive01, how many years has gej been as the president that he shld ve done all of ur list? How many past leaders' manifesto has ever been accomplished? Have u ever petition ur councilor on some ills? Its just to give a dog a bad name.

ladi02:

PDP is going out. .

Jonathan Knows it!
Dora Akunyili knows it!
All the lawmakers that have deflected know it!
PDP sef knows it!

Vote Wisely, Vote Ribadu 2011

YES!

Nsiman:

@ macjive01, how many years has gej been as the president that he shld ve done all of your list? How many past leaders' manifesto has ever been accomplished? Have u ever petition your councilor on some ills? Its just to give a dog a bad name.

You dey mind them?

Foreign reserves by country top 10

    COUNTRY                                              BILLION DOLLARS

1  People's Republic of China                        $ 2648.3 Billion
2  Japan                                                        $ 1050.2
3  Russia                                                       $   501.1
4  Saudi arabia                                             $    410.3
 5 Taiwan                                                      $    380.5
 6 India                                                          $   300.2
 7 South korea                                               $   293.3
 8 BRAZIL                                                        $  286 .6
 9 Hongkong                                                   $  266.1
10 Switzerland                                                $  249.5

In 1991 India has foreign reserve of just 1.4 billion dollars which is sufficent for 2 weeks of importation and on verge of bankruptcy .It lead to economic reforms and rest they say is history.

So NIGERIA can turn things around, but time is running out fast where with our importation culture where we import fom toothpicks to waste bins to laundry paper we need strong foreign reserves or less naira will go down the route of zimbabwe

macjive01:

Look this is precisely the reason I will nt b supporting Jonathan- firstly he wants the presidency without earning- wat has he done?

Has he nt got opportunity to give the nation a glimse of wat to come?

No plans for improved well planned transportation system- rather wat he is building is a tribalist, egocentric Niger-delta road; hoping to connect all the Niger-delta town. This wud simply turn to Tinapa or far northern roads that re dualized wen only at an exaggerated estimate only about 1000 cars ply there in a year compare to Benin- ore of over 250 million per-annum, yet it is in shambles!!

No plans for improvement of education - wat he did was give contract for 6 university of which one was located in his village in Bayelsa- Bayelsa currently has a new modern university that is so under-capacitated and under patronised - there re only 14 student in their civil engineering department compare to 240 in FUTO, yet imo state with highest number of jamb takers- last year 125000 compare to 3600 for Bayelsa, despite free jamb forms and full tuition for bayelsans),  enthusiast and eager prospective students has got NO " FULL" Federal University, nt technology one.  Which parent wud encourage his daughter to travel 4 hours on a tulmutous  flying boat to her destination, all becos of Uni when there re others around?

Foreign reserved has been depleted to 1.46 billion dollars, and the 1 billion out of it is kept aside for soviegnty fund,  don't mind the fools tell u it's still at 32 billion. If we had 32 billion why wud they b thinking of borrowing a piffle 3.4 billion dollars at high interest rate from some private investors ?? Check out www.ft.com under world and Africa.

I like GEJ, but he is toooo dull, so daft. Why cant he even pull people that has work n brought changes, tremendous changes at a point in our history back? People like Ngozi okonje iwealla, soludo- he is there atiku is tapping him off his very olodo eyes, Ribadu- he forgave he, why nt reinstate him so he cud carry on with his legacy, or even mk him the IG of police ?? How abt madam due-process ?

We don't need a quite man at this moment!! A time When NASS are allocating 25% of the budget to themselves, EFCC is gone comatose, our oil reserve is dwindling, abeg we need a strong man. A man who can fight, challenge these modaforkers!

What sort of jargon is this? Sounds like a beer palour argument

I am not a GEJ apologist, but it is pertinent to note that a lot of big money has excahnged hands since 2009 and it is still ongoing worrisome is the fact that most of these are fraudulently acquired, I remeber in my bank when CBN upped the dollar rate from N119 to N145 to a dollar two yrs ago, instant multi millionaires and billionares were made over night, folks with insider information, top guns, etc,

The politicians on one part are not faring well either, why are people so eager and desparate to get into elective offices in Nigeria? They were advocating reasons for not acquising to the new N18k minimum wage claiming inflationary trendt etc, this is just diversionary tactics, they know the 80% contributors to this worrisome trend. The elites have immuned themselves with investments and property acquistion abroad even buying houses in neighbouring Ghana and if it gets that bad, they'l simply relocate.

The options we have presently standing for elections may not be the antidote for the bad governance and corrective actions this country desires, they are all regional champions and script actors.

What a coincidence. Was thinking exactly about the value of the naira 2 days ago, & concluded that its current value may be unsustainable in the short to medium term.

- Our installed productive capacity is too small, & even the little there is, is underutilised
-To fill in the gaps, we import on a massive scale
- These imports have to be funded hence the rapid depletion of reserves.

What will certainly tip the scale profoundly in the short term (6-9mths) is the situation in the delta

Either way b4 2011 ends, I expect 165 to USD, and 280 to GBP.

The Brish economy is at its lowest ebb for 2 decades, yet the naira is 250 to GBP, at a time when crude price has remained quite robust.

What happens when international markets' confidence in the outlook for British public finance improves in 2011, as consensus estimates appear to suggest, then we can expect GBP to rise againt the naira, perhaps taking us to 280 to GBP. And if oil prices fall to & remain at around USD60 for a sustained period, then the naira will be in further trouble - maybe 170/175 to USD, & 285/290 for GBP would become a reality.

These are prob worst case scenarios & the naira may end up fairing better. But, I look on the micro & macro economic sides, plus the financial (money supply) & political instability associated with Nigerian elections, and I struggle to see an upside for the naira next year.

If you are abroad, think twice about sending your foreign currency home unless you have a special project in naija. If you're lucky to have some naira in a nigerian bank, you'd be better off taking care of relatives from that than sending foreign currency home.

With official inflation rate of about 13%, and savings rate of 3% or less, your 1million in a Nigerian bank will only be worth 900k (if you're lucky) in real terms by this term next yr.

Moral of the story? If you are abroad & you have the option to keep money there instead of Nigeria over the next 12mths, then do so.
Those resident in Nigeria obviously dont have that choice, so they will continue to keep their assets in naira.

Not a very patriotic advise, but I know how difficult it is to earn money abroad, and not many of us have the time to work out & understand how inflation & currency  devaluation destroy the value of money.

Missy85:

What a coincidence. Was thinking exactly about the value of naira 2 days ago, & concluded that its current value may be unsustainable in the short to medium term.

- Our productive capacity is too small, & even the little there is, is underutilised
-To fill in the gaps, we import on a massive scale
- These imports need to be funded hence the rapid depletion of reserves

What will certainly tip the scale profoundly in the short term (6-9mths) is the situation in the delta

Either way b4 2011 ends, I expect 165 to USD, and 280 to GBP.

The Brish economy is at its lowest ebb for 2 decades, yet the naira is 250 to GBP, at a time when crude price has remained quite robust.

What happens when international markets' confidence in the outlook for British public finance improves in 2011, as consensus estimates appear to suggest, then 280 naira to GBP is ver realistic indeed. And if oil prices fall to & remain at around USD60 for a sustained period, then, mark down 170/175 to USD, & 285/290 for GBP. Not good!

TRUE TALK

Imagine this happening at a time I was about to ask to start getting paid in Naira! For sure that idea is dead on arrival.

Good, let it fall. Why should you use export proceeds to prop imports instead of investment. This oil business has made us slaves. Its time to start looking inwards productively like the India someone has so illustrated.

you've got 2 wonder what kind of PhD this guy got

Tusky44:

What sort of jargon is this? Sounds like a beer palour argument

the joke is on you, buster. seem to me you are the one with the beer parlour argument. he has presented his case quite clearly. The least you could do is to

counter his argument by presenting your case but i suspect you are too lazy for that, ain't u?

Missy85:

Those resident in Nigeria obviously dont have that choice, so they will continue to keep their assets in naira.

gloomy prospect for naira there. what if i convert my naira to dollar or pound now. won't that safeguard me from the impending armageddon?

EKONGKING:

Foreign reserves by country top 10

    COUNTRY                                              BILLION DOLLARS

1  People's Republic of China                        $ 2648.3 Billion
2  Japan                                                        $ 1050.2
3  Russia                                                       $   501.1
4  Saudi arabia                                             $    410.3
 5 Taiwan                                                      $    380.5
 6 India                                                          $   300.2
 7 South korea                                               $   293.3
 8 BRAZIL                                                        $  286 .6
 9 Hongkong                                                   $  266.1
10 Switzerland                                                $  249.5

In 1991 India has foreign reserve of just 1.4 billion dollars which is sufficent for 2 weeks of importation and on verge of bankruptcy .It lead to economic reforms and rest they say is history.

So NIGERIA can turn things around, but time is running out fast where with our importation culture where we import fom toothpicks to waste bins to laundry paper we need strong foreign reserves or less naira will go down the route of zimbabwe
 

In 2000 and When??

DaWizard47:

In 2000 and When??

2000 and never.

has naira ever been in control b4.
abeg change topic!

as rightly said by FELA, when naira crashed many pple crashed with am!!!! Nlers be ready to ,

Let's kill corruption. Vote Ribadu 2011 --> http://www.facebook.com/ribadu

He knows the problem of this country, he knows why we want him.