Finance minister and coordinating minister for the economy Dr Ngozi Okonjo-Iweala has raised fresh alarm over the massive decline in the excess crude account (ECA) which is increasing the country's risk of having a revenue crisis.
She echoed the concerns raised by the Central Bank of Nigeria (CBN) governor, Malam Sanusi Lamido Sanusi, on Tuesday. "We're a little more vulnerable now than we were in the past," Okonjo-Iweala said in a Bloomberg Television interview with Francine Lacqua at the World Economic Forum in Davos yesterday.
The ECA stood at US$2.5 billion on January 17, 2014, compared with US$11.5 billion in December 2012, thus indicating the absence of fiscal buffers, increasing the country's reliance on portfolio flows and thus constituting the principal risk to exchange rate stability, especially with uncertainties around capital flows and oil price.
The ECA, used to cushion the economy against volatility, has been "spent down" to about $2.5 billion and needs to be increased this year, she said.
Rampant theft and pipeline vandalism in the Niger Delta is reducing oil output of Africa's largest producer, which depends on crude exports for about 80 per cent of government revenue. Savings are also being undermined because the state oil company retained $10.8 billion in revenue, Sanusi said in an interview last week.
Nigeria's foreign-currency reserves have dropped 11 per cent from last year's peak of $48.85 billion in May.
President Goodluck Jonathan's ruling Peoples Democratic Party is facing its biggest test since the end of military rule in 1999, after a series of defections to the main opposition party. While the government has said it plans to stick to its budget targets this year, Sanusi has warned of the threat of rising spending. Expenditure climbed 17 per cent before the 2011 presidential vote.
Nigeria plans to spend N4.9 trillion ($30.7 billion) in 2014; little changed from last year's budget, as the government forecasts oil production of 2.39 million barrels a day and a benchmark oil price of $77.50 a barrel. Crude output averaged less than 2 million barrels a day last year, according to data compiled by Bloomberg, compared with government forecasts for 2.53 million barrels.
"We have tried to set the country's main parameters in a very modest way," said Okonjo-Iweala. "We have made our budget at a very reasonable benchmark price for oil. This is to shield us and to ensure we're not subjected to any volatility there may be in the oil markets."
While Nigeria's economy will probably expand 6.75 per cent this year, compared to 6.5 per cent in 2013, increased growth has also fuelled rising inequality, she said.
"In Nigeria we are growing very fast, but that growth has come with increasing inequality and lack of inclusion of certain segments of the population," Okonjo-Iweala said.
Stormy NEC likely today
There are strong indications that today's National Economic Council (NEC) meeting will be stormy as state governors have resolved to confront the federal government over drop in the nations revenue profile.
The governors under the aegis of Rivers State governor Rotimi Amaechi- led Nigeria Governors' Forum (NGF) were last night locked in a closed session as at the time of this report at the Rivers Governor's Lodge in Abuja.
A source close to one of the governors confided in LEADERSHIP that the meeting of the governors was to articulate their position ahead of today's meeting to be presided over by Vice President Namadi Sambo.
Although it could not be confirmed, there were strong indications that the NEC meeting might be postponed to avoid a chaotic session.
All the same, the source said there was need on the part of the governors to have a common position before getting to today's NEC meeting.
"The issue of the dwindling revenue has to be tackled once and for all; it is possible that the governors are putting finishing touches to their position because of the secrecy that has shrouded the management of the economy."