Nigeria spending raises instability fears

Financial Times
17 December 2010

Nigeria spending raises instability fears
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.