By Stanley Opara with agency report

Tuesday, 7 Dec 2010

Nigeria’s foreign exchange reserves fell by almost a quarter to about $33bn by December 2, from $43bn a year ago, the Central Bank of Nigeria said on Monday.

The figure was also about four per cent down from the $34.3bn recorded in mid-November.

Reuters reported on Monday that increased government spending in the economy had put pressure on Nigeria’s reserves. Dollar demand at the bi-weekly forex auction also forced the CBN to dip into the reserves to defend the local currency last month, it added.

In October, ratings agency, Fitch, lowered the country’s sovereign credit outlook to negative from stable, citing the depletion of the reserves as a contributing factor.

Analysts have expressed growing concern about government spending in the run-up to 2011 elections.

Budget deficit is also expected to widen to 6.1 per cent this year, while billions of dollars has been spent from the windfall oil savings.

Fiscal discipline, Reuters said, was likely to become an election issue.

Analysts, however, said the current reserves level could finance more than 12 months of imports.

Nigeria expects its budget deficit to widen to 6.1 per cent of Gross Domestic Product this year, more than double the level set under the Fiscal Responsibility Act three years ago, as government spending rises ahead of the elections.

The Minister of Finance, Mr. Olusegun Aganga, had said revenue shortfalls from the oil and gas sector, unexpected wage increases and election costs would contribute to the widening deficit.

According to investigation, recurrent expenditure accounts for more than half of the country‘s overall spending, meaning that it is paying more to keep government running than it is investing in badly-needed infrastructure and other capital projects.

Government borrowing has risen sharply, increasing by more than 50 per cent since the beginning of the year, compared to private sector credit growth of just three per cent over the same period.

 

Source: Punch