By Tom Burgis in Lagos

December 16 2010

 

Goodluck Jonathan, Nigeria’s president, on Wednesday announced a budget that would cut spending next year in sub-Saharan Africa’s biggest oil producer, amid concern among investors, the central bank and credit rating agencies about the fiscal largesse that had depleted reserves.

 

Full details of the budget proposals were not immediately available but Mr Jonathan, who assumed office after the death of his predecessor in May and faces elections in April, said his $28bn spending plan represented an 18 per cent cutback compared with this year.

 

“This is a budget of fiscal consolidation, increasing economic growth and employment generation,” the president told the national assembly in Abuja, the capital. But there were worries that the bulk of the cuts would affect capital projects aimed at improving Nigeria’s woeful infrastructure, with recurrent expenditure – a key plank of a political system based on patronage – rising as a share of overall outlay.

 

Razia Khan, head of Africa research at Standard Chartered, welcomed a forecast reduction in the budget deficit from 6.1 per cent of gross domestic product this year to 3.6 per cent next year.

 

But she added: “Oil is not a renewable resource, and the use of oil revenue to finance mainly recurrent expenditure, with little done to boost longer-term savings, and the longer-term productive potential of the economy, is the more important issue [rather than deficit-reduction].”

 

Under fiscal discipline rules, Nigeria is supposed to place all oil revenue above a certain crude price into a rainy-day fund to insure against cycles of boom and bust.

 

But the fund, which stood at $20bn in September 2008 and should have received billions more in the meantime, has been depleted in the past two years, falling to $400m in August, with $1bn set aside for a proposed sovereign wealth fund.

 

Mr Jonathan said the oil price assumption in next year’s budget would be $65 a barrel, down $2 from this year.

 

The accuracy of a production forecast of an average of 2.3m barrels a day will depend on whether a fragile peace holds in the restive Niger delta oil region.

 

Analysts said the 7 per cent GDP growth forecast for next year, a fraction below this year’s rate, appeared reasonable.

 

Fitch, the credit ratings agency, changed its outlook on Nigeria’s creditworthiness from stable to negative in October, largely because of the depletion of the oil savings account.

 

Lamido Sanusi, the reformist central bank governor, has urged economic policymakers to impose greater discipline as the bank battles to maintain the value of the naira against the dollar and curb inflation.

 

Nigerian budgets tend to undergo several revisions before they are approved by lawmakers and extra-budgetary spending is commonplace.

 

  

Tom Burgis

West Africa correspondent

Financial Times

Mobile: +234 (0)808 505 6329

tom.burgis@ft.com

www.ft.com